A GREAT VIDEO DETAILING THE ORIGIN OF THE FINANCIAL CRISIS

Talking about YouTube - Corporate Welfare for Bush & Clinton's Financial Crisis 2/3
  

They were peeing in their own pool... of mortgage backed securities!!!

By TA Webster

Why would any prudent lender underwrite a loan for someone who couldn't afford it? What prudent lender loans money without knowing exactly what the collateral is worth? Why are so many people upside down on their home mortgages and are either nearing foreclosure or have already experienced foreclosure? Why do consumers pay $300 for a worthless real estate appraisal that isn't worth the paper it's written on? After all, the real estate appraiser IS the ultimate underwriter of the deal and our last line of defense for Fannie Mae and Freddie Mac (TAXPAYER) exposure.

The argument that someone purchased a home who "shouldn't have" means that there was a lender out there (or two) who was knowingly underwriting bad home loans. Here's one of many examples of what was taking place - http://www.msnbc.msn.com/id/22425001/vp/25453131#25453131

On the subject of home valuation, consumers are totally unaware of the incestuous relationship between lender and appraiser, it's borderline fraudulent. Years of hiring only "compliant" appraisers and blackballing honest appraisers (refusing work) has come home to roost in the form of a real estate bubble. I'd like to find out how many appraisers in the industry lost work for being realistic about property values.  I understand they left the business in droves.

Many honest appraisers knew in good judgement that property values were over-inflated but the consumer was never allowed to hear that voice of reason. Consumers have no choice in who the lender hires. We need to protect consumers from toxic loan products and inflated appraisals. It's as important as making sure our food supply doesn't get contaminated or that poison doesn't make its way into our childrens toys. It goes without saying that having some sort of minimum standards is a good thing for protecting the health and well being of the general public.       

So, bottom line -  what does a "good" appraiser do? What does a "good" appraisal look like? How do we fix the problem at hand? At a minimum there needs to be disclosure at time of loan application that explains to the consumer their rights and recourse for the product they are purchasing. There also needs to be some kind of agency disclosure explaining the relationship of the lender and the vendors they use for valuation services. If the consumer is not going to be the customer the lender should clearly explain this in advance prior to accepting payment from the borrower for the appraisal.

Consumers should also be well aware of industry terms like Automated Valuation Models or AVM's, Appraisal Management Companies or AMC's, unlocking secure appraisals, appraisal data portals, revenue sharing, comp checks, directed appraisals, appraiser pressure, etc. etc. - there are plenty of shady tactics being employed by the lending industry with the customers $300 appraisal fee.   

Please download a copy of "The Fraud of Appraisal Regulation" by Larry Levy (posted in the public file) and pass it along to a friend or two. Take care and may GOD Bless you and your families!

Greenspan: “Shocked Disbelief”

By Robert Borosage

October 24th, 2008

It marks the end of an era. Alan Greenspan, the maestro, defender of the market fundamentalist faith, champion of deregulation, celebrator of exotic banking inventions, admitted Thursday in a hearing before Rep. Henry Waxman’s House Committee and Oversight and Government Reform that he got it wrong.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he said.

As to the fantasy that banks could regulate themselves, that markets self-correct, that modern risk management enforced prudence: “The whole intellectual edifice, however, collapsed in the summer of last year.”

Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. Greenspan dismissed that goofiness in response to a question from one of its right-wing purveyors, Rep. Todd Platts, R-Pa., noting that subprime loans grew to a crisis only as the unregulated shadow financial system securitized mortgages, marketed them across the world, and pressured brokers to lower standards to generate a larger supply to meet the demand. Private greed, not public good, caused this catastrophe:

"The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities".

But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be “restrained,” he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets “for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime.”

Now hung over from their bender, the banks could be depended upon to remain sober “for the indefinite future.” Or until taxpayers’ money relieves their headaches, and they are free to party once more.

The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts^[1]—which contributed to the large budget deficits of the early 1990s.

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II. ^[2]

Savings and loan associations (also known as S&Ls or thrifts) have existed since the 1800s. They originally served as community-based institutions for savings and mortgages. In the United States, S&Ls were tightly regulated until the late 1970s.^{[citation needed]} For example, there was a ceiling on the interest rates they could offer to depositors.^{[citation needed]}

In the 1970s, many banks, but more particularly S&Ls, were experiencing a significant outflow from low-interest rate deposits, as interest rates were driven up by the high inflation rate of the late 1970s and as depositors moved their money to the new high-interest money market funds.^{[citation needed]} At the same time, the institutions^[clarify] had much of their money tied up in long-term mortgage loans at fixed interest rates, and with market rates rising, these were worth far less than face value. That is, to sell a 5 percent mortgage to pay requests from depositors for their funds in a market asking 10 percent, a savings and loan would have to discount its asking price on the mortgage. This meant that the value of these loans, which were the institution's^[clarify] assets, was less than the deposits used to make them, and the savings and loan's net worth was being eroded.

Under financial institution regulation, which had its roots in the Depression era, federally chartered S&Ls were only allowed to make a narrowly limited range of loan types. Late in the administration of President Jimmy Carter, caps were lifted on rates and the amounts insured per account to $100,000. In addition to raising the amounts covered by insurance, the amount of the accounts that would be repaid was increased from 70 percent to 100 percent. Increasing Federal Savings and Loan Insurance Corporation (FSLIC) coverage also permitted managers to take more risk to try to work their way out of insolvency so the government would not have to take over an institution.

Carter left office in January 1981, a year in which 3,300 out of 3,800 S&Ls lost money. In 1982 under Ronald Reagan, the combined tangible net capital of the industry was $4 billion. The chartering of federally regulated S&Ls accelerated rapidly with the Garn-St. Germain Depository Institutions Act of 1982, which was designed to make S&Ls more competitive and more solvent. S&Ls could now pay higher market rates for deposits, borrow money from the Federal Reserve, make commercial loans, and issue credit cards. They were also allowed to take an ownership position in the real estate and other projects to which they made loans and they began to rely on brokered funds to a considerable extent. This was a departure from their original mission of providing savings and mortgages.

Causes

Tax Reform Act of 1986

By enacting 26 U.S.C. § 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) to remove many tax shelters, especially for real estate investments, the Tax Reform Act of 1986 significantly decreased the value of many such investments which had been held more for their tax-advantaged status than for their inherent profitability. This contributed to the end of the real estate boom of the early to mid '80s and facilitated the Savings and Loan crisis. Prior to 1986, much real estate investment was done by passive investors. It was common for syndicates of investors to pool their resources in order to invest in property, commercial or residential. They would then hire management companies to run the operation. TRA 86 reduced the value of these investments by limiting the extent to which losses associated with them could be deducted from the investor's gross income. This, in turn, encouraged the holders of loss-generating properties to try and unload them, which contributed further to the problem of sinking real estate values. This turmoil and repositioning in real estate markets was caused not by changes in market conditions.^{[citations needed]}

Deregulation

Although the deregulation of S&Ls gave them many of the capabilities of banks, it did not bring them under the same regulations as banks, and the new legislation allowed them to enter new lending businesses with very little oversight. Thrifts^[clarify] could choose to be under either a state or a federal charter. Immediately after deregulation of the federally chartered thrifts, the state-chartered thrifts rushed to become federally chartered, because of the advantages associated with a federal charter. In response, states (notably, California and Texas) changed their regulations so they would be similar to the federal regulations. States changed their regulations because state regulators were paid by the thrifts they regulated, and they didn't want to lose that money.^{[citation needed]}

Imprudent real estate lending

In an effort to take advantage of the real estate boom (outstanding US mortgage loans: 1976 $700 billion; 1980 $1.2 trillion)^{[citation needed]} and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess. L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, stated, "The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending."^[3]

Keeping insolvent S&Ls open

Whereas insolvent banks in the United States were typically detected and shut down quickly by bank regulators, Congress sought to change regulatory rules so S&Ls would not have to acknowledge insolvency and the Federal Home Loan Bank Board (FHLBB) would not have to close them down.

Brokered deposits

One of the most important contributors to the problem was deposit brokerage.^{[citation needed]} Deposit brokers, somewhat like stockbrokers, are paid a commission by the customer to find the best certificate of deposit (CD) rates and place their customers' money in those CDs. These CDs, however, are usually short-term $100,000 CDs.^{[citation needed]} Previously, banks and (thrifts could only have five percent of their deposits be brokered deposits; the race to the bottom caused this limit to be lifted. A small one-branch thrift could then attract a large number of deposits simply by offering the highest rate. To make money off this expensive money, it had to lend at even higher rates, meaning that it had to make more, riskier investments. This system was made even more damaging when certain deposit brokers instituted a scam known as "linked financing." In "linked financing", a deposit broker would approach a thrift and say he would steer a large amount of deposits to that thrift if the thrift would lend certain people money (the people, however, were paid a fee to apply for the loans and told to give the loan proceeds to the deposit broker). This caused the thrifts to be tricked into taking on bad loans.^{[neutrality disputed]} Michael Milken of Drexel, Burnham and Lambert packaged brokered funds for several S&Ls on the condition that the institutions would invest in the junk bonds of his clients.

End of inflation

Another factor was the efforts of the federal government to wring inflation out of the economy, marked by Paul Volcker's speech of October 6, 1979, with a series of rises in short-term interest rates. This led to increases in the short-term cost of funding to be higher than the return on portfolios of mortgage loans, a large proportion of which may have been fixed rate mortgages (a problem that is known as an asset-liability mismatch). This effort failed and interest rates continued to skyrocket, placing even more pressure on S&Ls as the 1980s dawned and led to increased focus on high interest-rate transactions. Zvi Bodie, professor of finance and economics at Boston University School of Management, writing in the St. Louis Federal Reserve Review wrote, "asset-liability mismatch was a principal cause of the Savings and Loan Crisis".[1]

Major causes according to United States League of Savings Institutions

The following is a detailed summary of the major causes for losses that hurt the savings and loan business in the 1980s:^[4]

1. Lack of net worth for many institutions as they entered the 1980s, and a wholly inadequate net worth regulation.
2. Decline in the effectiveness of Regulation Q in preserving the spread between the cost of money and the rate of return on assets, basically stemming from inflation and the accompanying increase in market interest rates.
3. Absence of an ability to vary the return on assets with increases in the rate of interest required to be paid for deposits.
4. Increased competition on the deposit gathering and mortgage origination sides of the business, with a sudden burst of new technology making possible a whole new way of conducting financial institutions generally and the mortgage business specifically.
5. Savings and Loans gained a wide range of new investment powers with the passage of the Depository Institutions Deregulation and Monetary Control Act and the Garn-St. Germain Depository Institutions Act. A number of states also passed legislation that similarly increased investment options. These introduced new risks and speculative opportunities which were difficult to administer. In many instances management lacked the ability or experience to evaluate them, or to administer large volumes of nonresidential construction loans.
6. Elimination of regulations initially designed to prevent lending excesses and minimize failures. Regulatory relaxation permitted lending, directly and through participations, in distant loan markets on the promise of high returns. Lenders, however, were not familiar with these distant markets. It also permitted associations to participate extensively in speculative construction activities with builders and developers who had little or no financial stake in the projects.
7. Fraud and insider transaction abuses were the principal cause for some 20% of savings and loan failures the past three years^[clarify] and a greater percentage of the dollar losses borne by the Federal Savings and Loan Insurance Corporation (FSLIC).
8. A new type and generation of opportunistic savings and loan executives and owners—some of whom operated in a fraudulent manner — whose takeover of many institutions was facilitated by a change in FSLIC rules reducing the minimum number of stockholders of an insured association from 400 to one.
9. Dereliction of duty on the part of the board of directors of some savings associations. This permitted management to make uncontrolled use of some new operating authority, while directors failed to control expenses and prohibit obvious conflict of interest situations.
10. A virtual end of inflation in the American economy, together with overbuilding in multifamily, condominium type residences and in commercial real estate in many cities. In addition, real estate values collapsed in the energy states — Texas, Louisiana, Oklahoma particularly due to falling oil prices — and weakness occurred in the mining and agricultural sectors of the economy.
11. Pressures felt by the management of many associations to restore net worth ratios. Anxious to improve earnings, they departed from their traditional lending practices into credits and markets involving higher risks, but with which they had little experience.
12. The lack of appropriate, accurate, and effective evaluations of the savings and loan business by public accounting firms, security analysts, and the financial community.
13. Organizational structure and supervisory laws, adequate for policing and controlling the business in the protected environment of the 1960s and 1970s, resulted in fatal delays and indecision in the examination/supervision process in the 1980s.
14. Federal and state examination and supervisory staffs insufficient in number, experience, or ability to deal with the new world of savings and loan operations.
15. The inability or unwillingness of the Bank Board and its legal and supervisory staff to deal with problem institutions in a timely manner. Many institutions, which ultimately closed with big losses, were known problem cases for a year or more. Often, it appeared, political considerations delayed necessary supervisory action.

Failures

The United States Congress granted all thrifts in 1980, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. Designed to help the thrift industry retain its deposit base and to improve its profitability, the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 allowed thrifts to make consumer loans up to 20 percent of their assets, issue credit cards, accept negotiable order of withdrawal (NOW) accounts from individuals and nonprofit organizations, and invest up to 20 percent of their assets in commercial real estate loans.

The damage to S&L operations led Congress to act, passing a bill in September 1981^[5] allowing S&Ls to sell their mortgage loans and use the cash generated to seek better returns; the losses created by the sales were to be amortized over the life of the loan, and any losses could also be offset against taxes paid over the preceding 10 years. This all made S&Ls eager to sell their loans. The buyers – major Wall Street firms – were quick to take advantage of the S&Ls' lack of expertise, buying at 60%-90% of value and then transforming the loans by bundling them as, effectively, government-backed bonds (by virtue of Ginnie Mae, Freddie Mac, or Fannie Mae guarantees). S&Ls were one group buying these bonds, holding $150 billion by 1986, and being charged substantial fees for the transactions.

In 1982, the Garn-St Germain Depository Institutions Act was passed and increased the proportion of assets that thrifts could hold in consumer and commercial real estate loans and allowed thrifts to invest 5 percent of their assets in commercial loans until January 1, 1984, when this percentage increased to 10 percent.^[6]

A large number of S&L customers' defaults and bankruptcies ensued, and the S&Ls that had overextended themselves were forced into insolvency proceedings themselves.

The U.S. government agency FSLIC, which at the time insured S&L accounts in the same way the Federal Deposit Insurance Corporation insures commercial bank accounts, then had to repay all the depositors whose money was lost. From 1986 to 1989, FSLIC closed or otherwise resolved 296 institutions with total assets of $125 billion. An even more traumatic period followed, with the creation of the Resolution Trust Corporation in 1989 and that agency’s resolution by mid-1995 of an additional 747 thrifts. ^[7]

A Federal Reserve Bank panel stated the resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse selection incentives that compounded the system’s losses. ^[8]

There also were state-chartered S&Ls that failed. Some state insurance funds failed, requiring state taxpayer bailouts.

Home State Savings Bank of Cincinnati

In March 1985, it came to public knowledge that the large Cincinnati, Ohio-based Home State Savings Bank was about to collapse. Ohio Gov. Dick Celeste declared a bank holiday in the state as Home State depositors lined up in a "run" on the bank's branches to withdraw their deposits. Celeste ordered the closure of all the state's S&Ls. Only those that were able to qualify for membership in the Federal Deposit Insurance Corporation were allowed to reopen. ^[9] Claims by Ohio S&L depositors drained the state's deposit insurance funds. A similar event took place in Maryland.

Lincoln Savings and Loan

The Lincoln Savings led to the Keating five political scandal, in which five U.S. senators were implicated in an influence-peddling scheme. It was named for Charles Keating, who headed Lincoln Savings and made $300,000 as political contributions to them in the 1980s. Three of those senators – Alan Cranston (D-CA), Don Riegle (D-MI), and Dennis DeConcini (D-AZ) – found their political careers cut short as a result. Two others – John Glenn (D-OH) and John McCain (R-AZ) – were rebuked by the Senate Ethics Committee for exercising "poor judgment" for intervening with the federal regulators on behalf of Keating.^[10]

Silverado Savings and Loan

Silverado Savings and Loan collapsed in 1988, costing taxpayers $1.3 billion. Neil Bush, son of then Vice President of the United States George H. W. Bush, was Director of Silverado at the time. Neil Bush was accused of giving himself a loan from Silverado, but he denied all wrongdoing.[2]

The US Office of Thrift Supervision investigated Silverado's failure and determined that Neil Bush had engaged in numerous "breaches of his fiduciary duties involving multiple conflicts of interest." Although Bush was not indicted on criminal charges, a civil action was brought against him and the other Silverado directors by the Federal Deposit Insurance Corporation; it was eventually settled out of court, with Bush paying $50,000 as part of the settlement, the Washington Post reported.^[11]

As a director of a failing thrift, Bush voted to approve $100 million in what were ultimately bad loans to two of his business partners. And in voting for the loans, he failed to inform fellow board members at Silverado Savings & Loan that the loan applicants were his business partners.^{[citation needed]}

Neil Bush paid a $50,000 fine and was banned from banking activities for his role in taking down Silverado, which cost taxpayers $1.3 billion. A Resolution Trust Corporation Suit against Bush and other officers of Silverado was settled in 1991 for $26.5 million.

Financial Institutions Reform, Recovery, and Enforcement Act of 1989

As a result,^[clarify] the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) dramatically changed the savings and loan industry and its federal regulation. The highlights of the legislation, signed into law August 9, 1989, were:^[12]

1. The Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC) were abolished.
2. The Office of Thrift Supervision (OTS), a bureau of the Treasury Department, was created to charter, regulate, examine, and supervise savings institutions.
3. The Federal Housing Finance Board (FHFB) was created as an independent agency to oversee the 12 federal home loan banks (also called district banks).
4. The Savings Association Insurance Fund (SAIF) replaced the FSLIC as an ongoing insurance fund for thrift institutions (like the FDIC, the FSLIC was a permanent corporation that insured savings and loan accounts up to $100,000). SAIF is administered by the Federal Deposit Insurance Corp.
5. The Resolution Trust Corporation (RTC) was established to dispose of failed thrift institutions taken over by regulators after January 1, 1989. The RTC will make insured deposits at those institutions available to their customers.
6. FIRREA gives both Freddie Mac and Fannie Mae additional responsibility to support mortgages for low- and moderate-income families.

Consequences

While not part of the savings and loan crisis, many other banks failed. Between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance.^[13]

From 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645.^[7] This was primarily, but not exclusively, due to unsound real estate lending.^[14]

The market share of S&Ls for single family mortgage loans went from 53% in 1975 to 30% in 1990.^[2] U.S. General Accounting Office estimated cost of the crisis to around USD $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government from 1986 to 1996.^[1] That figure does not include thrift insurance funds used before 1986 or after 1996. It also does not include state run thrift insurance funds or state bailouts.

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II. ^[2]

Some commentators believe that a taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis.^[15]

See also

• Financial crisis
• Fractional-reserve banking
• Resolution Trust Corporation
• Tax Reform Act of 1986
• Cottage Savings Association v. Commissioner, a United States Supreme Court case dealing with the tax consequences of the S&L crisis
• United States v. Winstar Corp., a US Supreme Court case that gives a concise but useful history of the crisis and the accounting practices that aggravated that crisis.

Notes

1. ^ ^{a b} "Financial Audit: Resolution Trust Corporation's 1995 and 1994 Financial Statements" (PDF), U.S. General Accounting Office (July 1996). 
2. ^ ^{a b c} "Housing Finance in Developed Countries An International Comparison of Efficiency, United States" (PDF), Fannie Mae. 
3. ^ "Lessons of the Eighties: What Does the Evidence Show?" (PDF), FDIC (September 18, 1996). 
4. ^ Norman Strunk, Fred Case (1988). Where deregulation went wrong:a look at the causes behind savings and loan failures in the 1980s. Chicago: United States League of Savings Institutions, 15-16. ISBN 0929097327 9780929097329. OCLC 18220698. 
5. ^ fact=January 2008
6. ^ Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin, 123-124. ISBN 0-256-13948-2. 
7. ^ ^{a b} http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf
8. ^ "LESSONS FOR FEDERAL PENSION INSURANCE FROM THE SAVINGS AND LOAN CRISIS" (PDF), FEDERAL RESERVE BANK OF ST. LOUIS REVIEW (JULY/AUGUST 2006). 
9. ^ Home State Savings Bank's Failure - Ohio History Central - A product of the Ohio Historical Society
10. ^ Dan Nowicki, Bill Muller (2007-03-01). "John McCain Report: The Keating Five", The Arizona Republic. Retrieved on 2007-11-23. 
11. ^ Peter Carlson, "The Relatively Charmed Life Of Neil Bush: Despite Silverado and Voodoo, Fortune Still Smiles on the President's Brother", Washington Post", December 28, 2003
12. ^ (September-October 1989) FIRREA — It's Not a New Sports Car. The Credit World, 20. 
13. ^ http://www.fdic.gov/bank/historical/history/3_85.pdf
14. ^ http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
15. ^ Weiner, Eric (November 29, 2007). "Subprime Bailout: Good Idea or 'Moral Hazard", NPR.org. 

References

• Black, William K. (2005). The Best Way to Rob a Bank is to Own One. Austin: University of Texas Press. ISBN 0292706383. 
• Lowy, Michael (1991). High Rollers: Inside the Savings and Loan Debacle. New York: Praeger. ISBN 027593988X. 
• Mayer, Martin (1992). The Greatest Ever Bank Robbery : The Collapse of the Savings and Loan Industry. New York: C. Scribner's Sons. ISBN 0684191520. 
• Pizzo, Steven; Fricker, Mary; Muolo, Paul (1989). Inside Job: The Looting of America's Savings and Loans. New York: McGraw-Hill. ISBN 0070502307. 
• Robinson, Michael A. (1990). Overdrawn: The Bailout of American Savings. New York: Dutton. ISBN 0525249036. 
• Tolchin, Martin (1990-09-27). "Legal Scholars Clash Over Neil Bush Actions", New York Times. 
• White, Lawrence J. (1991). The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation. New York: Oxford University Press. ISBN 0195067339. 
• Cassell, Mark K. (2003). How Governments Privatize: The Politics of Divestment in the United States and Germany. Washington: Georgetown University Press. ISBN 1589010086. 

External links

• FDIC: The S&L Crisis: A Chrono-Bibliography
• The Cost of Savings & Loan Crisis: Truth & Consequences
• Classic Financial and Corporate Scandals

Quote:  "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."  - Thomas Jefferson

YouTube - Megadeth - Foreclosure of A Dream
                     

Congress is once again looking at Banking Deregulation. Will it ignore the lessons of the past?

"What has once happened will invariably happen again, when the same circumstances which combined to produce it shall again combine in the same way" -ABRAHAM LINCOLN

"Greed is healthy" - IVAN BOESKY

Last October, as the O.J. Simpson saga roared into its 2000th irritating hour and the Whitewater hearings cost taxpayers yet another ten-grand, an equally significant event quietly took place in the American justice system: Charles H. Keating Jr. was released from jail. You remember Charlie, the poster boy of the savings and loan catastrophe of the 1980s. Well, despite his role in the regrettable disappearance of $2.5 billion in taxpayer-insured funds, Keating was released on October 3, following a court ruling that jurors at his 1993 federal trial had been inappropriately influenced by their knowledge of Keating's conviction in California state court. Keating's state convictions had been overturned in April, because his trial judge, the now notorious Lance Ito, had given improper instructions to the jury. Then on December 2, the remainder of his criminal convictions were thrown out by a federal district court in Los Angeles. The U.S. attorney's office is still deciding whether to retry the case.

But why revisit the Keating story now? Seven years have passed since his Lincoln Savings and Loan became the symbol of an industry gone mad. Whole reams of newsprint described his doings and his sins, and his face appeared so often on the nightly news that it was imprinted on the collective consciousness of the nation. The case is closed, the story is over, and Charlie Keating is ancient history.

Well, not quite.

By a curious paradox commonplace in financial crimes, only a fraction of Keating's antics--not including his intimate connection with Michael Milken, another emblematic felon of the Decade of Greed--made it into the spotlight. Reporters concentrated on his lavish lifestyle, the fact that he tried to buy the Phoenix City Council, and that he was able to get one of his associates appointed to the Home Loan Bank Board, the federal agency that monitored his activities and had the power to stop him cold. (This was likened, correctly, to John Gotti getting one of his sidekicks appointed deputy director of the FBI.) It was also noted that he knowingly sold millions of dollars worth of valueless securities to thousands of people; erected a pyramid to himself in the Arizona desert in the form of a ridiculously extravagant hotel; and somehow managed to mislay $2.5 billion of the taxpayers' money. But much of what he did was never reported.

There are a number of reasons for this. Most reporters have to make sense of something by six o'clock in the evening, and major financial crimes such as Keating's involve the sort of mind-numbingly tedious, specialized analysis that most reporters, their other virtues aside, are not trained to do. In addition, complex financial crimes take days and weeks to explain in court, using language heavily freighted with obscure terms. Even then, there is no guarantee that a judge and jury will understand; therefore, prosecutors usually base their cases on the simplest and most comprehensible of the criminal's misdeeds--in Keating's case, robbing widows and orphans. As a result, the greater crimes are almost never revealed, and their larger meaning remains unknown. True to form, Keating and Milken's greater misdeeds never saw the light of day. So why revisit them now, aside from the fun in revealing an old but untold story--and, of course, the entertainment value of Charlie Keating?

The answer is both simple and urgent: deregulation. While Congress's drive to free industry from the clutches of big government may not be quite as maniacal as before last November's elections, the urge is still deeply rooted in the soul of the GOP--which, if you'll recall, remains firmly in control of both houses. And with the banking industry at the forefront of those clamoring to be freed from their regulatory shackles, the nightmare of the S&L years could easily happen all over again. As a result, now may indeed be the perfect time to explore the full magnificence of Keating's big adventure--keeping in mind, of course, that the next financial disaster, if it comes, will be infinitely greater.

Free Rein

In 1982, flying in the face of everything known about banks, bankers, and human nature when they are placed in the vicinity of a huge sum of money, Congress passed the Garn-St. Germain Act. This deregulated the nation's thrift industry and threw wide the doors of the S&Ls to anyone with a plausible story, a fistful of cash, and a visible desire to start doing all sorts of wonderful and imaginative things with the taxpayer-insured deposits.

The passage of Garn-St. Germain found Keating at loose ends. The home-building business he then headed was not in terrific shape, and although President Reagan had tried to appoint him ambassador to the Bahamas--which would probably have saved everybody a tremendous amount of trouble--the appointment fell through when members of the Senate discovered that in 1979, the Securities and Exchange Commission had filed a complaint against Keating and his then-mentor, Ohio billionaire and big-time political donor Carl Lindner, for allegedly violating anti-fraud, disclosure, and proxy provisions. (Lindner eventually settled with the SEC for $1.4 million.) But Garn-St. Germain, Keating was quick to realize, changed everything. True, he didn't have enough money to buy an S&L suitable to his purposes, but he knew Michael Milken. In turn, Milken and his brokerage firm, Drexel Burnham Lambert, were looking for funds to create their dreamed-of junk bond network. It was a meeting of minds.

The trick, Keating came to realize under the guidance of Milken, was not to find just any old S&L, but a particular kind of S&L. Garn-St. Germain had dramatically increased the powers of the thrifts and dramatically reduced the powers of the federal watchdogs, but the states still had their own regulations. By a happy chance, however, California had just passed a new law allowing the owner of a thrift to invest 100 percent of his federally insured deposits in anything, anything at all. Keating soon set his sights on a well-run southern California thrift named Lincoln Savings & Loan.

In 1983, Milken's Drexel underwrote a $125 million debt-offering for Keating's American Continental Corporation--an event largely overlooked by the press. It was, California Commissioner of Savings and Loans William Crawford later told the House Banking Committee, "window-dressing," meaning Drexel managed to give Keating's floundering ACC the appearance of ruddy good health and luminous solvency. Next, Drexel underwrote a $56 million preferred stock issue of ACC. Keating took $51 million of the money and bought Lincoln. In other words, Drexel bought Lincoln for Keating. Drexel also secretly purchased a substantial hunk of the thrift for itself. The firm reserved 10 percent of Lincoln's stock, a fact that Drexel and Keating tactfully failed to mention to regulators until 1985, when they revealed their relationship so quietly the regulators failed to notice it.

In buying Lincoln--where he never held an official position because, as he later blurted out to a Seattle regulator, he "didn't want to go to jail"--Keating committed a number of promises to writing. Among others, he pledged to retain Lincoln's experienced executives and to continue its slow, steady, unglamorous (and sound) policy of basing its business on home loans. Keating immediately did neither of these things. Lincoln all but suspended its home loan operation, and company officers were replaced by ACC staffers who were essentially devoid of banking experience. With his plan thus in place, Keating set about purchasing $2.7 billion in junk bonds, almost all of them (or at least the ones that regulators later inspected) from Drexel. And when examiners from the Federal Home Loan Bank of San Francisco, Lincoln's primary regulator, got around to taking a good look at Keating's notion of an S&L, they found a number of strange and alarming things about Lincoln's junk bonds.

"Lincoln's Investment Department," San Francisco wrote in its confidential examination report, "consisted of an executive vice president' an investment manager and two investment analysts.... Not one of these investment managers or analysts had worked for an investment banking firm. Not one of their resumes reflected pre-Lincoln experience in analyzing corporate debt or equity securities"

Even so, an inexperienced investment staff can quickly become knowledgeable as it performs the exhaustive, painstaking analysis of the companies and financial instruments that are candidates for the institution's investments. This research and analysis, considered essential by virtually all investment houses, is called "due diligence" Lincoln performed no due diligence.

Instead, when word reached Lincoln that the San Francisco examiners were on their way, Arthur Andersen, the Big Eight accounting firm that was Lincoln's auditor, dispatched a team to "stuff the files" with the sort of documents that other financial institutions consider vital to making investment decisions. But Arthur Andersen didn't do the job very well.

"[The] analyses prepared by Arthur Andersen in no sense document the justification for securities purchases," said the examination report. "Nor were they `due diligence' reports in any meaningful sense.... They were essentially cut-and-paste jobs"

The people at Lincoln and Arthur Andersen gave many and conflicting reasons for this state of affairs, but to the examiners, the most persuasive explanation came from Lincoln's own in-house legal counsel, Mark Sauder. The cut and pasted documents, Sauder said, had been put in the files for the examiners to find, and for no other reason.

But it gets worse.

A soundly-run investment operation will hedge its bets by seeking the advice of, and making its investments through, a number of different brokerage houses. Lincoln, the examiners concluded, did neither of these things. Instead, "[i]n the junk bond files that we have examined," wrote Professors Alan Shapiro and Mark Weinstein of the University of Southern California in a study made for San Francisco, "the only broker dealt with is Drexel Burnham Lambert"

The great danger of using a single broker is that an investment house (and the people whose money it is investing) will fall prey to the brokerage's hidden agendas--agendas which often involve a broker's desire to get rid of something no prudent investor will touch. Indeed, even the most casual examination of Lincoln's junk bond purchases reveals a number of Mike Milken's greatest hits, together with some of his biggest dogs. For example, in 1986 Lincoln invested $100 million in the Ivan Boesky Limited Partnership, with Drexel charging a $4 million brokerage fee. The investment constituted 246 percent of Lincoln's junk bond portfolio and a remarkable 57.5 percent of Lincoln's net worth. Boesky was the emblematic risk arbitrageur of the 1980s, and Lincoln's examiners regarded the Boesky investment as extraordinarily risky. If Boesky lost the thrift's $100 million, he was not on the hook, Drexel was not on the hook, and Lincoln was not on the hook. The taxpayers were.

"When examiners asked Lincoln for its analysis of this investment," the government remarked, they found that "Lincoln's written 'analysis' of a $100 million investment...consisted of a grossly inadequate two-page memorandum that consisted largely of a report on a conversation with a broker who had a vested interest in selling the notes" (Boesky later paid a $50 million fine and went to jail for his financial misdeeds, taking Milken down with him. Lincoln got its money back, but not the returns it had been promised; Lincoln would have been better off putting the taxpayers' money in a bank.)

The government's conclusion: "Keating," says a lawsuit filed by the Federal Deposit Insurance Corporation and the Resolution Trust, "purchased or sold junk bonds as directed by the Milken Group"

Aside from his dealings with Drexel, what else did Keating do with Lincoln's--i.e., the taxpayers'--money? A lot of things, far too many to be documented here. Keating made many strange loans and participated in weird real estate deals. For example, in 1987 Lincoln made a $30 million loan to a company controlled by two close political associates of Sen. Dennis DiConcini of Arizona. The company was in terrible shape, the loan was unsecured, and it was granted on a non-recourse basis: If DiConcini's associates defaulted on the loan, they didn't have to repay it. A loan is rated at its face value--in this case $30 million--plus accrued interest, and it is usually possible to recover money when a loan is bad; the collateral can be seized and the salary of the lender can be garnisheed. But DiConcini's associates pledged no collateral, and their company's few assets were overshadowed by huge liabilities. When the examiners looked at the loan, they estimated its value--to Lincoln, that is--at $0. It was not a bad loan; it was a disastrous loan. It could not be repaid, it would probably never be repaid, and it should never have been made to begin with.

"The transaction," Richard Newsom, senior examiner for the California Department of Savings and Loans, told the Banking Committee, "was so strange in its magnitude...to a company with liabilities off the chart. We felt that the link to a U.S. Senator...should be brought to the attention of the appropriate officials, the FBI..."

Clearly, Newsom had his suspicions. To understand what they were, a spot of background is in order.

By 1987, when San Francisco made its examination of Lincoln, an alarmed Federal Home Loan Bank Board was aware that Garn-St. Germain had created a financial catastrophe of unknown dimensions. Under Chairman Edwin Gray, a Reagan appointee of unusual integrity, the Bank Board began to impose a number of existing but long-neglected rules in an attempt to restore a measure of sanity to the situation. This move did not please the White House, and it did not please Charlie Keating.

White House chief of staff Donald Regan tried to fire Gray, only to discover that Gray had been appointed for a fixed term. The administration threatened to have him arrested for enforcing the nation's laws. James Miller III's Office of Management and Budget attempted to reduce Gray's already-inadequate staff of underpaid examiners. Keating took his own steps, which is where Senator DiConcini enters the picture.

When most people bring the thrift crisis to mind, they recall the Keating Five--Senators Glenn, Cranston, McCain, Riegle, and DiConcini--who met on Capitol Hill with Gray's San Francisco regulators in an attempt to head them off. But most people are unaware that before this, there was the Keating Four (the Five minus Riegle) who called Gray in to plead the cause of the man they called "our friend" In many ways, this meeting was the far more important of the two. Whereas the San Francisco regulators were well-informed about the disastrous situation at Lincoln and gave the five Senators better than they got, the meeting of the Keating Four targeted Chairman Gray, who had been instructed to come alone, without his staff. Gray was in an impossible situation: Aware Keating was loudly proclaiming that the chairman was engaged in a personal vendetta, Gray had deliberately distanced himself from the examination; he knew little about Keating or Lincoln. Now, worn down by his failing attempts to restrain an industry spinning out of control and by the relentless attacks of his own administration, Gray found himself ill-prepared to face the hostile audience.

All of the Four (except Glenn, whose former chief of staff had been hired by Keating at a princely salary) had received handsome contributions from Keating. The group gathered in DiConcini's office at the senator's invitation. During the meeting, DiConcini held on his lap a memorandum that outlined Keating's terms and conditions, as though Keating were a sovereign nation. If Gray would call off his dogs and stop writing new rules, DiConcini explained, Keating would agree to make some home loans. Gray, though shaken by this exhibition of Keating's raw political power, refused. But Keating had many more strings in his bow. To rid himself of his tormentor, he tried to hire Gray away from the Bank Board; Gray declined. Next, Keating engaged the services of Alan Greenspan, then an economist in private practice, as a paid flack. The future chairman of the Federal Reserve prepared two remarkable documents. In the first, he announced that Lincoln was a new, innovative, and soundly-run institution that "poses no foreseeable risk to FSLIC" In the second, he analyzed a number of other new, innovative, and soundly-run S&Ls and blessed their work. Not long after, all the thrifts on Greenspan's list had failed but one, and the survivor--although Greenspan didn't seem to know it--was not a thrift.

Keating pressed on. The Federal Home Loan Bank Board had three members, Gray and two others. When two seats became vacant, Keating put forward his own candidates, Professor George Benston, another of his paid academic flacks, and Lee Henkel, a Georgia lawyer who was involved in number of poorly performing enterprises to which Lincoln had loaned millions. Benston didn't make the cut, but the Reagan Justice Department gave Henkel a clean bill of health. During his brief tenure on the Bank Board, Henkel proposed precisely one new regulation. Out of the 3,000 S&Ls in the land, it would have benefited just two, one of which was Lincoln. (Gray believed that Henkel was unaware of the other one.) Shortly after Sen. William Proxmire revealed Henkel's relationship with Keating and Lincoln, however, Henkel declared that he was fed up and resigned.

Still, things were looking up for Charlie Keating. Gray's term expired, and he was succeeded by M. Danny Wall. Wall was a former top aide to Sen. Jake Garn, the co-author of Garn-St. Germain, and a considerably more Keating-friendly regulator. Wall's dealings with Keating are a study in creative regulation. In an unprecedented move, Wall allowed Keating to try to change his primary regulator from the hated San Francisco Home Loan Bank to the one in Seattle. At a meeting with Seattle regulators, Keating offered to effect the transfer by establishing a bogus headquarters at a Utah thrift within Seattle's district, which he volunteered to purchase on the spot with a personal check. Seattle was not amused. The transfer did not take place.

Nonetheless, Keating was able to negotiate a memorandum of understanding (MOW) with Wall's Home Loan Bank Board. It was, William Black, acting counsel for San Francisco and the former deputy director of the Bank Board, told the House Banking Committee, "the worst so-called enforcement document in history.... the Agreement and the MOU were a virtual cease and desist order...against the Bank Board."

In a second unprecedented move, San Francisco was ordered to suspend its examination of Lincoln. A new team of examiners was assembled from the staffs of Home Loan Banks around the country and placed under the direct control of Wall's office--a third unprecedented move. But get this: Wall's examiners were forbidden to read San Francisco's report on Lincoln--unprecedented move No. 4. The examiners were not permitted to look through Lincoln's original documents but were supplied with copies instead (unprecedented move No. 5). And in words that no examiner could ever remember hearing from a superior's lips--but which bore certain echoes of the 1980s Alan Greenspan--the examiners were informed that Lincoln was a new and imaginative kind of thrift that many people did not understand. It looked as though Keating was about to slip away again. But he had reckoned without the state of California. In the last of many brazen moves, Keating began to sell bonds issued by his holding company, American Continental. Bonds costing hundreds of millions of dollars were sold to thousands of people, many of them elderly. Keating's salesmen particularly targeted the elderly, some of them widows and orphans, and most of them citizens of California. The bonds were worthless.

Desperate to stop the sale but lacking the necessary powers, Commissioner William Crawford of the California Department of Savings and Loans sent his own small examination team to Lincoln, to see if his people could somehow put a spoke in Keating's wheel.

For years, Keating's regulators had wondered how he always seemed to anticipate their moves. The California regulators discovered one possible explanation: The supposedly secure telephone line from their office in Lincoln to Los Angeles headquarters had been bugged. Tracing the bug, they found that a number of Keating's executives could listen in on every word. Nonetheless, Keating's string had just about run out.

It was Keating's habit to prowl through the rooms where regulators were conducting examinations, uttering threats and imprecations and talking grimly of personal lawsuits. On one of his tours, he encountered senior examiner Richard Newsom. Under the terms of Keating's understanding with Wall's Bank Board, federal regulators were forbidden to examine certain documents containing information that Keating quite clearly wanted to keep to himself. Newsom, however, was quite clearly examining them--something that Keating did not hesitate to point out.

"Mr. Keating," Newsom replied, "I am from the state of California, and we did not sign the memorandum of understanding. And you, sir, are in my jurisdiction" It was over.

Largely because California had put some spine into a Federal examination that had previously seemed devoted to keeping Keating in business at all cost. Lincoln was seized by the government in 1989. But not before a truck emblazoned with the words "document destruction" had pulled up to the Lincoln loading dock. And not before Keating and his associates had managed to blow $2.5 billion of the taxpayers' money. Keating went to jail. Lincoln ceased to exist. Michael Milken also went to jail, but not a single charge against him involved Lincoln, the mulcting of the taxpayers, or the use of their money in creating a junk bond market that disrupted the economy of the entire country. The story has a sour ending, but it ends. Or does it?

In the waning years of the 20th century, Newt Gingrich's Washington strongly resembles a place where nothing has been learned and everything forgotten. On Capitol Hill, only a few aging progressive Democrats--and an equally small handful of thoughtful Republicans like Jim Leach of Iowa--remember why the country's financial institutions were regulated in the first place: When regulations are removed from a financial institution, the very kinds of illegal behavior they were designed to prevent come roaring back with a vengeance.

This regression was all-too-vividly demonstrated during the S&L fiasco, which the General Accounting Office estimates will cost the country close to $380 billion. Today there is somewhere between 11 and 12 times that amount, also taxpayer insured, in the nation's banks. At the moment, the banks are humming along quite nicely--and profitably--prevented from gambling away their federally insured deposits by a law called Glass-Steagall. Glass-Steagall is an old law, passed more than 60 years ago. In those 60 years, the United States has not experienced a single system-wide banking calamity--and the United States was once a country of many banking calamities. But although signed by Herbert Hoover, Glass-Steagall was vigorously enforced by Franklin Roosevelt. And as every modern Republican knows, old laws--especially old laws with FDR's fingerprints on them--are destined for the dustbin of history.

Fortunately, any gung-ho deregulators looking to muck around with the banking system must first pass through Jim Leach, head of the House Banking Committee, and one of perhaps four people on the Hill who understands a thing about the industry. Unfortunately, the thoughtful Mr. Leach may pose an equally dangerous--and more immediate--threat to the current system. While opposing wholesale deregulation, Leach nonetheless believes the banking industry should be "modernized " This means trashing Glass-Steagall, and replacing it with his new bill that would allow banks to sell insurance and make "responsible investments" in securities.

But experience suggests that the banks already have too much leeway in their investment strategies, and that, if anything, regulation should be tightened. During the 1970s and '80s, the large institutions in the banking centers of New York, Chicago, and San Francisco lent truckloads of money to the world's less developed countries and lost many billions when the customers could not repay the loans. While the banks were recovering from the consequences of their own stupidity, they gazed upon the real estate market of the 1980s, superheated as it was by the wild extravagances of Keating and others of similar kidney, and found it good. The money center banks made billions of dollars of real estate loans--and lost a huge chunk of them. In addition, certain holes in Glass-Steagall permit banks to purchase arcane financial instruments as a speculation; money got lost there, too. By 1989, the giant banks Citicorp and Chase Manhattan--and perhaps the Bank of America--were arithmetically insolvent, which is a slightly complicated way of saying they were broke. The regulators politely looked the other way while the banks put their houses in order. (It is an unspoken axiom of the American government that a giant bank can under no circumstances be allowed to fail.) The taxpayers lost no money.

Responsible conservatives like Leach argue that the world has changed, the lessons of the past have been absorbed, and new laws are needed to allow U.S. banks to compete on the world stage with institutions such as the Japanese banks, which are unhobbled by outdated legislation. This is to ignore the fact that the Japanese banks, having speculated wildly during the bubble economy, are out of money, and remain open only because everybody tells the same lie: "Ain't nothin' wrong here, pal."

With his reputation as a level-headed sort, Leach's chances for loosening banking laws are considerably stronger than those of the more indiscriminate deregulation cowboys (and cowgirls) on Capitol Hill. Having introduced his bill in January 1995, Leach enjoyed bi-partisan committee support until last June, at which time partisan bickering convinced him not to put the measure to a committee vote. On day one of the 105th Congress, however, he reintroduced the bill, and the folks in his office say that, with the election over, "the environment is different" and all parties seem more willing to negotiate in order to get the Leach Bill passed. Nor does it appear that Clinton, who continues slouching ever-farther toward the right in his desire to be viewed as part of "the vital center," would prove to be an obstacle to "updating" banking laws. To the contrary, this January The New York Times reported that representatives of the banking industry were among those in attendance at one of the DNC-sponsored White House koffeeklatches last May--as was Comptroller of the Currency Eugene Ludwig. Among the topics discussed: the repeal of Glass-Steagall. East Coast Bank chairman Hjaima Jonson told the Times that the President was "an active participant" in discussing how Glass-Steagall could be overhauled. In fact, rather than hindering the deregulation process, the administration is considering doing Leach one better, by opening the way for ownership of banks by commercial firms.

History tells us that even if well-meaning legislators replace current laws with more industry-friendly measures, then sometime soon after, the American people are likely to discover that their lawmakers have just bought them a mess of pottage. Just something to think about as you ponder the fact that Charlie Keating, like Michael Milken, is out of jail and on the prowl. Back in Scottsdale, Ariz., with his family, Keating is confident he can vanquish any remaining legal issues that may crop up. He is tan, rested, and--as Time magazine noted last month in an interview with Keating--"itching to get back on the horse."

LJ. DAVIS is a contributing editor of Harper's magazine, a contributing writer for Mother Jones magazine, and is writing a book on interactive television.

COPYRIGHT 1997 Washington Monthly Company
COPYRIGHT 2004 Gale Group

http://findarticles.com/p/articles/mi_m1316/is_n3_v29/ai_19189454/pg_1?tag=artBody;col1

By Robert Borosage

September 30th, 2008 - 10:27am ET

On September 29, Congress revolted against the $700 billion price tag of the proposed bailout of Wall Street. The day before, that same Congress passed without murmur—unanimously in the Senate—a $700 billion budget for the Pentagon in 2009. The worst financial crisis since the Great Depression has shattered the conservative illusions about deregulation and market fundamentalism. But the equally costly illusions about America’s role as an “indispensable nation” policing the globe go without challenge. We remain prisoners of war.

Most Americans have no sense of the cost and scope of America’s role as globocop. We sustain what Chalmers Johnson calls an “empire of bases” across the globe – over 700 active bases in more than 30 countries. Our navy polices the world’s oceans. We task our military to maintain “dominance” not only in our own hemisphere, but in Europe, the Persian Gulf and Asia. Our intelligence “plumbing in place” engages in covert activities throughout the globe. We are the only nation with the capacity to airlift expeditionary forces rapidly and in large numbers across the globe. We are now devoting some $12 billion a month to wars in Afghanistan and Iraq. President Bush has declared a “Global War on Terror,” a so-called “long war,” without limits or exits. Our Defense Secretary complains that the military is displacing the desiccated State Department as America’s representatives across the world.

The cost of sustaining this commitment is staggering. The Pentagon’s budget itself represents more than half of all discretionary spending—everything the government does, outside of entitlements like Social Security and Medicare, and interest on the national debt. At $700 billion, it is about equal to that spent by the rest of the world combined on the military. But the actual cost of our military is strewn throughout the budget. Add in the cost of our veterans, the arms aid in the State Department budget, Homeland Security, and more—and actual spending climbs over $1 trillion a year .

Our military has no rival, but we grow ever less secure. There are three fundamental reasons for this.

As carpenters know, if you only carry a hammer, lots of things start looking like a nail. Maintain a global military constantly engaged across the world, and it will find things to do. As one conservative Southern Senator once said, “the greater ability we have to go places and do things, the more likely we are to go there and do them.” Neo-conservatives dream of the military remaking the Middle East. Humanitarians demand that it act to stop genocide or atrocities from Rwanda to Darfur. Global corporations insist that it challenge pirates and rogue states that are posing an increasing nuisance to shipping.

Thus, the fanatics that launched the airplanes against the World Trade Towers are turned into warriors; the very real threat they pose transformed into a Global War on Terror. This not only helps justify the “war of choice” against Iraq, surely the most costly national security debacle since Vietnam. It also distracts us from a sensible strategy against al Qaeda and its allies. As http://www.rand.org/pubs/occasional_papers/2007/RAND_OP168.pdf  the Pentagon’s own think tank, the Rand Corporation concluded in a recent study, the very concept of a “war on terror” isn’t only a distraction; it is detraction from a sensible strategy. By elevating al Qaeda into global warriors, it inflates their importance, and aids their ability to recruit. At the same time, it scorns the real measures needed to counter al Qaeda—intelligence cooperation, financial constraints, and alert and aggressive policing. Worse, it undermines the broad challenge that must be made to engage Islam, to rally the forces of moderation, and to isolate the extremists.

The second problem is the obverse: things that don’t look like nails get ignored. America’s priorities are badly distorted. Abroad, as Defense Secretary Gates acknowledged, generals and admirals displace our diplomats. Arms sales dominate our foreign assistance programs. At home, our country is literally falling apart from lack of investment in a modern, energy efficient infrastructure. We spend tens of billions each year to project our military power into the Persian Gulf, but fail to invest in the renewable energy and conservation at home that could reduce our dependence on foreign oil, generate jobs here in the U.S., and help capture the green markets that will be the growth markets of the future. We are a wealthy country, so in fact, we probably could afford to sustain military spending at current levels. But we can’t do so, and slash taxes on the wealthy and the corporations, without starving basic investments here at home, even as we rack up record deficits.

Worse, the military has no answer to the major threats to our security: a growing global indebtedness that can’t be sustained, the rise of India and China as economic powerhouses, catastrophic climate change and the growing resource struggles that will be far more destabilizing than Islamic terrorists, an integrated global economy of ever greater instability. Worse, the attention devoted to military misadventures like Iraq gets in the way of addressing these looming threats.

The third problem is the contrast between the Republic we are trying to secure and the national security state that has been built to police the globe. War augments the power of the executive. War and military threat justify secrecy, covert operations, disdain for constitutional limits and checks and balances. President Bush claims the right to launch preventive war on any nation in the world, to wiretap Americans without warrant, to designate them an enemy combatant and arrest them without reasonable cause, to hold them without review. Abu Ghraib, Guantanamo, rendition and torture have shamed America during the Bush years. But the lawlessness of the national security state – and the trampling of our own liberties in the name of security – did not begin in 2000. Bush has merely taken to the extreme prerogatives claimed by presidents over the last decades.

But the myths that sustain our military—and the lobbies that promote military spending—are politically unassailable. Both major party presidential candidates pledge to increase the size of the military and project higher military spending in the future. Both support an increased military occupation in Afghanistan, ignoring the history of fierce Afghani resistance to foreign occupation that confounded Britain at the height of its empire, and the Soviet Union right off its borders. The financial crisis and coming recession is forcing a great reckoning in America. But to date, there is no serious challenge to our priorities, or to America’s commitment to policing the globe. The presidential debate on foreign policy featured disputes about Iraq, about Georgia, about Afghanistan, about the economic crisis. But our basic global strategy, our spending priorities went without question or comment.

Economic crisis, like hanging, has a way of concentrating the mind. The financial crisis and the harsh recession likely to follow will spark a fundamental debate about America’s economy. But the debacle in Iraq has not had the same effect on the foreign policy debate. A challenge to America’s global strategy will not come from Washington. It won’t come from the national security managers of either party. It can only come if citizens build a democratic movement willing and able to demand the debate that we need.

McCain and Obama debate Sept. 26 - Sen. Obama & McCain debate.

SO WHEN HE SAYS "A LOT OF US" WHO DO YOU THINK HE WAS REFERRING TO AND, MORE IMPORTANTLY - WHEN WERE THEY WERE PLANNING ON TELLING US, THE AMERICAN PUBLIC ABOUT THE POSSIBILITY OF AN OVER-VALUED REAL ESTATE MARKET?  SOUNDS STRANGE COMING FROM A MAN WHO NOT TOO LONG AGO SAID THE FUNDAMENTALS OF THE MARKET WERE SOUND.  WASN'T THE S&L CRISIS & RTC BAILOUT ALL ABOUT OVERVALUED REAL ESTATE?

FIRST OF ALL, UNDERSTAND THAT A MAJORITY OF SUBPRIME BORROWERS WERE NOT LOW INCOME BORROWERS.  THE "OPEN BAR" MANTRA ON WALL STREET GAVE EASY ACCESS TO CHEAP MONEY AND HELPED FUEL MASSIVE SPECULATION IN THE HOUSING MARKET, THUS DRIVING UP THE COST OF LIVING FOR WORKING CLASS FAMILIES AND CITIZENS THAT JUST WANTED TO BUY A HOME TO LIVE IN.  MANY FEARED THAT THEY NEEDED TO BUY SOON OR ELSE THEY'D BE PRICED OUT OF THE MARKET.

CONSUMERS THAT  BORROW MONEY & USE A LOAN PRODUCTS UNDERWRITTEN TO HUD, FNMA OR FHLMC STANDARDS ARE USUALLY REQUIRED TO PURCHASE A REAL ESTATE APPRAISAL.  THE FEE IS TYPICALLY PAID OUTSIDE OF CLOSING AND MAY BE SHOWN AS POC ON THE HUD STATEMENT.  THE APPRAISAL SHOULD BE NON-BIASED (NO DIRECTED APPRAISALS - WHERE THE CONTRACT OR LOAN AMOUNT IS GIVEN TO THE APPRAISER IN ADVANCE) AND MUST REPRESENT THE HONEST VALUE OF THE HOME.  THERE'S ANOTHER COMPONENT OF THE APPRAISAL THAT DESCRIBES MARKET CONDITIONS AND ANY ADVERSE EFFECTS (IF ANY) IN THE LOCAL HOUSING MARKET. 

THE IRONY IS - THE REAL STORY IS NOT ABOUT SUB-PRIME LOANS, IT'S ABOUT COMMISSIONED LOAN OFFICERS THAT FEARED LOSING BUSINESS BY NOT CLOSING A LOAN BECAUSE OF A LOW APPRAISAL.  THE REAL PROBLEM AT HAND IS THE LACK OF DISCLOSURE AND SEVERE LACK OF UNDERSTANDING (BY CONSUMERS) OF THE RELATIONSHIP BETWEEN THE LENDER AND THE APPRAISAL COMPANY.

THE SOONER WE REALIZE THAT THIS CATASTROPHE WAS NOT ABOUT BUYING HOMES (IT WAS ABOUT LOANING MONEY), THE SOONER WE CAN FIGURE OUT A WAY TO PREVENT THIS FROM HAPPENING AGAIN IN THE FUTURE.

THE APPRAISAL COMPANY EARNS IT'S FEE FROM THE BORROWER, BUT THE "LENDER" IS CONSIDERED TO BE THE CUSTOMER OF THE APPRAISAL COMPANY... NOT THE BORROWER.  REALIZE THAT THE IMPORTANCE OF AN APPRAISAL COMING IN "AT THE NUMBER" AND NOT LESS MEANS THE DIFFERENCE BETWEEN AN APPRAISAL COMPANY (AND A LENDER, AND A REALTOR) EARNING A FEE OR NOT.  MANY TIMES THE APPRAISER WHO ACTUALLY PERFORMS THE APPRAISAL IS ONLY GETTING A SMALL PORTION OF THAT MONEY – THE AMC'S TAKE A HEFTY CHUNK OF THE APPRAISAL FEE THEN GIVE THE BALANCE TO THE APPRAISER ASSIGNED TO PERFORM THE WORK.  THIS TOTALLY UNDERMINES THE APPRAISAL BUSINESS.

ANY APPRAISER THAT WAS HONEST ABOUT MARKET CONDITIONS AND PRICES WAS RUN COMPLETELY OUT OF BUSINESS - LEAVING ONLY COMPLIANT APPRAISERS WITH WHICH TO ASSIGN THE WORK.  EVEN THOUGH THE BUYER (CONSUMER) IS PAYING FOR APPRAISAL SERVICES, THERE IS LITTLE OR NO UNDERSTANDING OF THE VALUE OF THE SERVICE BEING PROVIDED FOR THE MONEY.  IF YOU WISH TO HIRE A "GOOD" REAL ESTATE APPRAISER, WHAT DOES "GOOD" MEAN AND WHAT DOES A "GOOD" APPRAISAL LOOK LIKE?  HOW CAN THERE POSSIBLY BE A TRUE INDEPENDENT ASSESSMENT OF VALUE WHEN THE HOME TEAM (LENDERS) ARE ALLOWED TO PICK THE UMPIRES (APPRAISERS) IN THE GAME.   

*GOOGLE SEARCH - APPRAISAL PRESSURE AND LOSS OF JOBS IN THE APPRAISAL INDUSTRY

Example - real appraiser speaks out - http://garyhooser.livejournal.com/20142.html

WE'LL DISCUSS WHAT CONSTITUTES A "GOOD APPRAISER" SOME OTHER TIME, BUT FOR NOW LET'S FOCUS FOR JUST ONE MOMENT ON WHAT CONSUMERS DO NOT KNOW WHEN APPLYING FOR A LOAN:  ALTERNATIVE VALUATION MODELS OR AVM's, BANK "REVIEW" APPRAISERS, APPRAISAL MANAGEMENT COMPANIES OR AMC's, APPRAISER PRESSURE, UNLOCKING OF SECURE PDF FILES THAT CONTAIN SENSITIVE DATA AFTER AN APPRAISER USES HIS OR HER ELECTRONIC SIGNATURE, ETC.  

CHECK THIS OUT - FROM THE NEWS;  The Attorney General of New York filed a lawsuit accusing Washington Mutual (WaMu) of conspiring with First American eAppraiseIT to artificially inflate the appraised value of borrowers' homes on Washington Mutual home loans made since mid-2006. Washington Mutual borrowers were charged hundreds of dollars each for these bogus appraisals. Besides the needless cost, an artificially inflated appraisal can result in loan amounts and terms that are unfair and harmful to the borrower. This is because the appraisal sets the market value of the borrower's home which in turn is used to determine the amount and terms of the loan. Thus, an accurate appraisal is essential to ensuring that the amount and terms of the loan are fair and appropriate for the borrower. 

SO WHY THEN IF THE MCCAIN CAMP "SAW THIS TRAIN WRECK COMING", DIDN'T THEY GET UP, GIVE LAST CALL TO THE WALL STREET FAT CATS WHO PRESIDENT BUSH SAID GOT DRUNK (‘W’ KNOWS BECAUSE HE WAS IN THE SAME BAR WITH THEM, THE FED RES BOARD, SEC & EXCH COMM, TREASURY DEPT, FANNIE MAE, FREDDIE MAC, ETC.) AND GET THE SITUATION UNDER CONTROL?  BECAUSE TOO MANY PEOPLE WERE MAKING MONEY @SS OVER FIST. 

AND WHY TO THIS DAY ISN'T THERE ANY SHRED OF PROTECTION OR DISCLOSURE ABOUT REAL ESTATE APPRAISALS AND THE VENDOR SELECTION & AUTOMATION PROCESS THE DRIVES THE APPRAISAL AND LENDING INDUSTRY?  LORD KNOW ONE MUST SIGN A STACK OF PAPERS A MILE-HIGH WHEN CLOSING ON A HOME, MOSTLY LOAN DOCS, BUT THERE IS NOT ONE PEEP ABOUT THE RESULTS OF THE REAL ESTATE APPRAISAL THAT THE CONSUMER PAID FOR.  WHAT AN INJUSTICE!     

IN SUMMARY, IF A CONSUMER PAYS FOR AN APPRAISAL - HE OR SHE OUGHT TO BE GETTTING THEIR MONEY'S WORTH! INSTEAD, WE GET TO PAY FOR A $700 BILLION DOLLAR BAILOUT.  THANKS WASHINGTON FOR LETTING US KNOW ABOUT THAT TRAIN COMING DOWN THE TRACK!  SOFT-LANDING FOR THE HOUSING MARKET HUH???  I THOUGHT THOSE LIGHTS COMING AT US MIGHT HAVE BEEN THE KIDS OUT IN THE NEIGHBORHOOD PLAYING FLASHLIGHT TAG - SILLY ME ;~)

The Real Story of the Money-Control Over America

This study on money is not copyrighted. It may be reproduced in whole or in part for the purpose of helping the American people.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson

Americans, living in what is called the richest nation on earth, seem always to be short of money. Wives are working in unprecedented numbers, husbands hope for overtime hours to earn more, or take part-time jobs evenings and weekends, children look for odd jobs for spending money, the family debt climbs higher, and psychologists say one of the biggest causes of family quarrels and breakups is "arguments over money." Much of this trouble can be traced to our present "debt-money" system. Too few Americans realize why Christian Statesmen wrote into Article I of the U.S. Constitution: Congress shall have the Power to Coin Money and Regulate the Value Thereof.

They did this, as we will show, in prayerful hope it would prevent "love of money" from destroying the Republic they had founded. We shall see how subversion of Article I has brought on us the "evil" of which God's Word had warned.

MONEY IS MAN'S ONLY "CREATION"

Economists use the term "create" when speaking of the process by which money comes into existence. Now, creation means making something that did not exist before. Lumbermen make boards from trees, workers build houses from lumber, and factories manufacture automobiles from metal, glass and other materials. But in all these they did not "create," they only changed existing materials into a more usable and, therefore, more valuable form. This is not so with money. Here, and here alone, man actually "creates" something out of nothing. A piece of paper of little value is printed so that it is worth a piece of lumber. With different figures it can buy the automobile or even the house. Its value has been "created" in the true meaning of the word.

MONEY "CREATING" PROFITABILITY

As is seen by the above, money is very cheap to make, and whoever does the "creating" of money in a nation can make a tremendous profit! Builders work hard to make a profit of 5% above their cost to build a house.

Auto makers sell their cars for 1% to 2% above the cost of manufacture and it is considered good business. But money "manufacturers" have no limit on their profits, since s few cents will print a $1 bill or a $10,000 bill.

That profit is part of our story, but first let us consider another unique characteristic of the thing - money, the love of which is the "root of all evil."

ADEQUATE MONEY SUPPLY NEEDED

An adequate supply of money is indispensable to civilized society. We could forego many other things, but without money industry would grind to a halt, farms would become only self-sustaining units, surplus food would disappear, jobs requiring the work of more than one man or one family would remain undone, shipping, and large movements of goods would cease, hungry people would plunder and kill to remain alive, and all government except family or tribe would cease to function.

An overstatement, you say? Not at all. Money is the blood of civilized society, the means of all commercial trade except simple barter. It is the measure and the instrument by which one product is sold and another purchased. Remove money or even reduce the supply below that which is necessary to carry on current levels of trade, and the results are catastrophic. For an example, we need only look at America's Depression of the early 1930's.

THE BANKERS DEPRESSION OF THE 1930's

In 1930 America did not lack industrial capacity, fertile-farm land, skilled and willing workers or industrious farm families. It had an extensive and highly efficient transportation system in railroads, road networks, and inland and ocean waterways. Communications between regions and localities were the best in the world, utilizing telephone, teletype, radio, and a well-operated government mail system. No war had ravaged the cities or the countryside, no pestilence weakened the population, nor had famine stalked the land. The United States of America in 1930 lacked only one thing: an adequate supply of money to carry on trade and commerce. In the early 1930's, Bankers, the only source of new money and credit, deliberately refused loans to industries, stores and farms.

Payments on existing loans were required however, and money rapidly disappeared from circulation. Goods were available to be purchased, jobs waiting to be done, but the lack of money brought the nation to a standstill. By this simple ploy America was put in a "depression" and the greedy Bankers took possession of hundreds of thousands of farms, homes, and business properties. The people were told, "times are hard," and "money is short." Not understanding the system, they were cruelly robbed of their earnings, their savings, and their property.

MONEY FOR PEACE?  NO!  MONEY FOR WAR?  YES!

World War II ended the "depression." The same Bankers who in the early 30's had no loans for peacetime houses, food and clothing, suddenly had unlimited billions to lend for Army barracks, K-rations and uniforms! A nation that in 1934 couldn't produce food for sale, suddenly could produce bombs to send free to Germany and Japan! (More on this riddle later.)

With the sudden increase in money, people were hired, farms sold their produce, factories went to two shifts, mines re-opened, and "The Great Depression" was over! Some politicians were blamed for it and others took credit for ending it. The truth is the lack of money (caused by the Bankers) brought on the depression, and adequate money ended it. The people were never told that simple truth and in this article we will endeavor to show how these same Bankers who control our money and credit have used their control to plunder America and place us in bondage.

POWER TO COIN AND REGULATE MONEY

When we can see the disastrous results of an artificially created shortage of money, we can better understand why out Founding Fathers, who understood both money and God's Laws, insisted on placing the power to "create" money and the power to control it ONLY in the hands of the Federal Congress. They believed that ALL citizens should share in the profits of its "creation" and therefore the national government must be the ONLY creator of money. They further believed that ALL citizens, of whatever State or Territory, or station in life would benefit by an adequate and stable currency and therefore, the national government must also be, by law, the ONLY controller of the value of money.

Since the Federal Congress was the only legislative body subject to all the citizens at the ballot box, it was, to their minds, the only safe depository of so much profit and so much power. They wrote it out in the simple, but all-inclusive: "Congress shall have the Power to Coin Money and Regulate the Value Thereof."

HOW THE PEOPLE LOST CONTROL TO THE FEDERAL RESERVE

Instead of the Constitutional method of creating our money and putting it into circulation, we now have an entirely unconstitutional system. This has resulted in almost disastrous conditions, as we shall see.

Since our money was handled both legally and illegally before 1913, we shall consider only the years following 1913, since from that year on, ALL of our money has been created and issued by an illegal method that will eventually destroy the United States if it is not changed. Prior to 1913, America was a prosperous, powerful, and growing nation, at peace with its neighbors and the envy of the world. But - in December of 1913, Congress, with many members away for the Christmas holidays, passed what has since been known as the FEDERAL RESERVE ACT. (For the full story of how this infamous legislation was forced through our Congress, read Conquest or Consent, by W. B. Vennard). Omitting the burdensome details, it simply authorized the establishment of a Federal Reserve Corporation, with a Board of Directors (The Federal Reserve Board) to run it, and the United States was divided into 12 Federal Reserve "Districts."

This simple, but terrible, law completely removed from Congress the right to "create" money or to have any control over its "creation," and gave that function to the Federal Reserve Corporation. This was done with appropriate fanfare and propaganda that this would "remove money from politics" (they didn't say "and therefore from the people's control") and prevent "Boom and Bust" from hurting our citizens. The people were not told then, and most still do not know today, that the Federal Reserve Corporation is a private corporation controlled by bankers and therefore is operated for the financial gain of the bankers over the people rather than for the good of the people. The word "Federal" was used only to deceive the people.

MORE DISASTROUS THAN PEARL HARBOR

Since that "day of infamy," more disastrous to us than Pearl Harbor, the small group of "privileged" people who lend us "our" money have accrued to themselves all of the profits of printing our money' - and more! Since 1913 they have "created" tens of billions of dollars in money and credit, which, as their own personal property, they then lend to our government and our people at interest. "The rich get richer and the poor get poorer" had become the secret policy of our National Government. An example of the process of "creation" and its conversion to people's "debt" will aid our understanding.

THEY PRINT IT - WE BORROW IT AND PAY THEM INTEREST

We shall start with the need for money. The Federal Government, having spent more than it has taken from its citizens in taxes, needs, for the sake of illustration, $1,000,000,000. Since it does not have the money, and Congress has given away its authority to "create" it, the Government must go the "creators" for the $1 billion. But, the Federal Reserve, a private corporation, doesn't just give its money away! The Bankers are willing to deliver $1,000,000,000 in money or credit to the Federal Government in exchange for the Government's agreement to pay it back - with interest! So Congress authorizes the Treasury Department to print $1,000,000,000 in U.S. Bonds, which are then delivered to the Federal Reserve Bankers.

The Federal Reserve then pays the cost of printing the $1,000,000,000 (about $1,000) and makes the exchange. The Government then uses the money to pay its obligations. What are the results of this fantastic transaction? Well, $1 billion in Government bills are paid all right, but the Government has now indebted the people to the Bankers for $1 billion on which the people must pay interest! Tens of thousands of such transactions have taken place since 1913 so that by the 1980's, the U.S. Government is indebted to the Bankers for over $1,000,000,000,000 (trillion) on which the people pay over $100 billion a year in interest alone with no hope of ever paying off the principal. Supposedly our children and following generations will pay forever and forever!

AND THERE'S MORE     -      http://www.usa-the-republic.com/banks/federal%20reserve.html

THE COST TO YOU... EVENTUALLY, EVERYTHING

In 1910 the U.S. Federal debt was only $1 billion, or $12.40 per citizen. State and local debts were practically non-existent.

By 1920, after only 6 years of Federal Reserve shenanigans, the Federal debt had jumped to $24 billion, or $226 per person.

In 1960 the Federal debt reached $284 billion, or $1,575 per citizen and State and local debts were mushrooming.

By 1981 the Federal debt passed $1 trillion and was growing exponentially as the Banker's tripled the interest rates. State and local debts are now MORE than the Federal, and with business and personal debts totaled over $6 trillion, 3 times the value of all land and buildings in America.

If we signed over to the money-leaders all of America we would still owe them 2 more Americas (plus their usury, of course!)

FOR THE GAMBLERS

Imagine yourself in a poker or dice game where everyone must buy the chips (the medium of exchange) from a "banker" who does not risk chips in the game, but watches the table and every hour reaches in and takes 10% to 15% of all the chips on the table. As the game goes on, the amount of chips in the possession of each player will go up and down with his "luck."

However, the TOTAL number of chips available to play the game (carry on trade and business) will decrease rapidly.

The game will get low on chips, and some will run out. If they want to continue to play, they must buy or borrow them from the "banker." The "banker" will sell (lend) them ONLY if the player signs a "mortgage" agreeing to give the "banker" some real property (car, home, farm, business, etc.) if he cannot make periodic payments to pay back all of the chips plus some EXTRA ones (interest). The payments must be made on time, whether he wins (makes a profit) or not.

It is easy to see that no matter how skillfully they play, eventually the "banker" will end up with all of his original chips back, and except for the very best players, the rest, if they stay in long enough, will lose to the "banker" their homes, their farms, their businesses, perhaps even their cars, watches, rings, and the shirts off their backs!

Our real-life situation is MUCH WORSE than any poker game. In a poker game none is forced to go into debt, and anyone can quit at any time and keep whatever he still has. But in real life, even if we borrow little ourselves from the Bankers, the local, State, and Federal governments borrow billions in our name, squander it, then confiscate our earnings from us and pay it back to the Bankers with interest. We are forced to play the game, and none can leave except by death. We pay as long as we live, and our children pay after we die. If we cannot pay, the same government sends the police to take our property and give it to the Bankers. The Bankers risk nothing in the game; they just collect their percentage and "win it all." In Las Vegas and at other gambling centers, all games are "rigged" to pay the owner a percentage, and they rake in millions. The Federal Reserve Bankers' "game" is also rigged, and it pays off in billions!

In recent years Bankers added real "cards" to their 'game. "Credit" cards are promoted as a convenience and a great boon to trade. Actually, they are ingenious devices by which Bankers collect 2% to 5% of every retail sale from the seller and 18% interest from buyers. A real "stacked" deck!

YES, IT'S POLITICAL, TOO!

Democrat, Republican, and Independent voters who have wondered why politicians always spend more tax money than they take in should now see the reason. When they begin to study our "debt-money" system, they soon realize that these politicians are not the agents of the people but are the agents of the Bankers, for whom they plan ways to place the people further-in debt. It takes only a little imagination to see that if Congress had been "creating," and spending or issuing into circulation the necessary increase in the money supply, THERE WOULD BE NO NATIONAL DEBT, and the over $4 Trillion of other debts would be practically non-existent. Since there would be no ORIGINAL cost of money except printing, and no CONTINUING costs such as interest, Federal taxes would be almost nil. Money, once in circulation, would remain their and go on serving its purpose as a medium of exchange for generation after generation and century after century, just as coins do now, with NO payments to the Bankers whatever!

AND THERE'S MORE    -    SEE THE FULL ARTICLE ONLINE AT;

http://www.usa-the-republic.com/banks/federal%20reserve.html

Let's now consider the correct method of providing the money (medium of exchange) needed by our people.

THE CONSTITUTIONAL WAY - EVERY CITIZEN A STOCKHOLDER

If we would have used the Constitutional way of "creating" the money needed in the nation, the Federal Congress would spend most of its time and study on the issuance and control of an adequate supply of stable money for the people. If an increase of population and production required an increase in the medium of exchange, Congress would authorize the "coining," (i.e., printing) of the determined amount. Some could be used to pay current legitimate expenses of the Federal Government, with the balance paid directly to the citizens. Records for payment would be similar to Social Security records, except a citizen would be recorded at birth, instead of when he first goes to work. Each person on the records as of the date of the Congressional authorization would receive an equal amount just as if he were a stockholder holding one' share. Just think - a payment of only $20 to each citizen would put $4 billion of debt-free and interest-free money into circulation.

Such a suggestion always scares the Bankers. Their propagandists will immediately cry, "printing press money." and warn that it would soon be "worthless" and would "cause inflation."

The truth is their immense usury chases on their "created" credit (our debt) is the sole cause of "inflation." All prices on all industry, trade and labor must be raised periodically to pay the ever increasing usury charges. That is the ONLY cause of higher prices, and the money-changers spend millions in propaganda to keep you from realizing that.

The money-creators (Bankers) know that if we ever tried a Constitutional issue of debt-free, interest-free currency, even a limited issue, the benefits would be apparent .immediately. That they must prevent. Abraham Lincoln was the last President to issue such debt-free and interest-free currency (in 1863) and he was assassinated shortly thereafter.

NO BANKER'S PLUNDER

Under a Constitutional system no private banks would exist to rob the people. Government banks under the control of the people's representatives would issue and control all money and credit. They would issue not only actual currency. but could lend limited credit at no interest for the purchase of capital goods, such as homes. A $60,000 loan would require only $60,000 repayment, not $255,931 as it is now. Everyone who supplied materials and labor for the home would get paid just as they do today, but the Bankers would NOT get $195,931 in usury, AND THAT IS WHY THEY RIDICULE AND DESTROY ANYONE SUGGESTING GOVERNMENT (CITIZENS') MONEY WITHOUT INTEREST AND WITHOUT DEBT.

History tells us of debt-free and interest-free money issued by governments. The American colonies did it in the 1700's and their wealth soon rivaled England and brought restrictions from Parliament, which led to the Revolutionary War. Abraham Lincoln did it in 1863 to help finance the Civil War. He was later assassinated by an agent of the Rothschild Bank. No debt-free or interest-free money has been issued in America since then. Several Arab nations issue interest-free loans to their citizens today. The Saracen Empire for bad interest on money for 1,000 years, and its wealth outshone even Saxon Europe. Mandarin China issued its own money, interest-free and debt-free, and historians and collectors of art today consider those centuries to be China's time of greatest wealth, culture and peace.

Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole Capitalist and Communist world to destroy the German power over Europe and bring Europe back under the heel of the Bankers. Such history of money does not even appear in the textbooks of public (government) schools today.

CITIZEN CONTROL

If the Federal Congress failed to act, or acted wrongly, in the supply of money, the citizens would use the ballot or recall petition to replace those who prevented correct action with others whom the people believe would pursue a better money policy. Since the creation of money and its issuance in sufficient quantity would be one of the few functions of Congress, the voter could decide on a candidate by his stand on money, instead of the hundreds of lesser, and deliberately confusing, subjects which are presented to us today. And since money is, and would remain, a national function, local differences or local factions would not be able to sway the people from the nation's (citizens') interest. All other problems, except the nation's defense, would be taken care of in the State, County, or City governments where they are best handled and most easily corrected.

An adequate national defense would be provided by the same citizen-controlled Congress, and there would be no Bankers behind the scenes, bribing politicians to give $200 billion of American military equipment to other nations, disarming us, while alien nations prepare to attack and invade the United States of America.

A DEBT-FREE AMERICA

With debt-free and interest-free money, there would be no high and confiscatory taxation, our homes would be mortgage free with no $10,000-a-year payments to the Bankers, nor would they get $1,000 to $2,500 per year from every automobile on our roads. We would need no "easy payment" plans, "revolving" charge accounts, loans to pay medical or hospital bills, loans to pay taxes, loans to pay for burials, loans to pay loans, nor any of the thousand and one usury-bearing loans which now suck the life-blood of American families. There would be no unemployment, divorces caused by debt, destitute old people, or mounting crime, and even the so-called "deprived" classes would be deprived of neither job nor money to buy the necessities of life. 

A debt-free America would mean mothers would not have to work. With mother at home, juvenile delinquency would decrease rapidly. The elimination of the usury and debt would be the equivalent of a 50% raise in the purchasing power of every worker. With this cancellation of all debts, the return to the people of all the property and wealth the parasitic Bankers and their quasi-legal agents have stolen by usury and fraud, and the ending of their theft of $300 Billion (or more) every year from the people, America would be prosperous and powerful beyond the wildest dreams of its citizens today. And we would be at peace! (For a Bible example of cancellation of debts to money lenders and restoration of property and money to the people, read Nehemiah 5: 1-13.)

WHY YOU HAVEN'T KNOWN

We realize this small, and necessarily incomplete, article on money may be charged with oversimplification. Some may say that if it is that simple the people would have known about it, and it could not have happened. But this MONEY-LENDERS' consPIRACY is as old as Babylon, and even in America it dates far back before the year 1913. Actually, 1913 may be considered the year in which their previous plans came to fruition, and the way opened for complete economic conquest of our people. 

AUDIT THE FEDERAL RESERVE SYSTEM?

The Federal Reserve has never been audited by the government since it took over our money and credit in 1913. In 1975 a bill, H.R. 4316, to require an audit was introduced in Congress. During the April, 1975 hearings, this author submitted a statement favoring the audit, as did many others. Due to pressure from the money controllers, it was not passed. No audit of the Fed has ever been made.

WHY HAVEN'T THEY TOLD YOU?

Why haven't they told you about this scandal - the greatest fraud in history which has caused Americans and others to spill oceans of blood, pay trillions of dollars interest on fraudulent loans and burden themselves with unnecessary taxes? 

WHAT SOME FAMOUS MEN HAVE SAID ABOUT THE MONEY QUESTION

PRESIDENT THOMAS JEFFERSON:

"The system of banking is a blot left in all our Constitutions, which, if not covered, will end in their destruction.  I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale".

PRESIDENT JAMES A. GARFIELD:

"Whoever controls the volume of money in any country is absolute master of all industry and commerce".

CONGRESSMAN LOUIS T. McFADDEN:

"The Federal Reserve Banks are one of the most corrupt institutions the world has ever seen.  There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers".

HORACE GREELEY:

"While boasting of our noble deeds we’re careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery”.

THOMAS A. EDISON:

"People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work.  This is the terrible thing about interest... but here is the point: If the Nation can issue a dollar bond it can issue a dollar bill.  The element that makes the bond good makes the bill good also.  The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%.  Whereas the currency, the honest sort, provided by the Constitution pays nobody but those who contribute in some useful way.  It is absurd to say our Country can issue bonds and cannot issue currency.  Both are promises to pay, but one fattens the usurer and the other helps the People.  If the currency issued by the People were no good, then the bonds would be no good, either.  It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold. Interest is the invention of Satan".

PRESIDENT WOODROW WILSON:

"A great industrial Nation is controlled by its system of credit.  Our system of credit is concentrated.

The growth of the Nation and all our activities are in the hands of a few men.  We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men".  Just before he died, Wilson is reported to have stated to friends that he had been "deceived" and that "I have betrayed my Country".

He was referring to the Federal Reserve Act passed during his Presidency. 

SIR JOSIAH STAMP:

<<President of the Bank of England in the 1920's, the second richest man in Britain>>: "Banking was conceived in iniquity and was born in sin.  The Bankers own the earth.  Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again.  However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in.  But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits".

MAJOR L. B. ANGUS:

"The modern Banking system manufactures money out of nothing.  The process is perhaps the most astounding piece of sleight of hand that was ever invented.  Banks can in fact inflate, mint and unmint the modern ledger-entry currency".

RALPH M. HAWTREY:

<<Former Secretary of the British Treasury>>: "Banks lend by creating credit.  They create the means of payment out of nothing".

ROBERT H. HEMPHILL:

<<Credit Manager of Federal Reserve Bank, Atlanta, GA>>: "This is a staggering thought.  We are completely dependent on the commercial Banks.  Someone has to borrow every dollar we have in circulation, cash or credit.  If the Banks create ample synthetic money we are prosperous; if not, we starve.  We are absolutely without a permanent money system.  When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.  It is the most important subject intelligent persons can investigate and reflect upon.  It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon".

Billions for the Bankers - Debts for the People

The Real Story of the Money-Control Over America

http://www.usa-the-republic.com/banks/federal%20reserve.html

- by Sheldon Emery 

By Robert Murphy - May 2008

That, in essence, is what I told a U. S. congressional committee—20 years ago. At the time, I was explaining one of the root causes of the savings-and-loan (S&L) crisis: directed appraisals. But I could just as easily have been talking about how the appraisal industry operated during 2005, 2006 and 2007—the run-up to the subprime crisis. That’s because directed appraisals have continued to be the industry’s Achilles ’ heel for the past two decades, despite federal guidelines that prohibit them and despite the growth of appraisal management companies (AMC's) that were supposed to serve as a firewall between appraisers and lenders.

Of course, no one condones or acknowledges these practices. But until very recently, they happened all too often at lenders large and small. As the founder of two vendor-management companies (Lender’s Service Inc. and ValuAmerica) , I have discussed this issue regularly with clients over three decades, and no one ever disagreed—at least in theory. But when the push back came—and it always did—it would come from the same place: retail lending. Loan officers would complain about new appraisal ordering procedures, and their managers would acquiesce rather than risk losing their star performers.

And then we ’d start to hear the age-old code words: “Has to travel too far . . . comps aren’t accurate . . . charges too much.” Translated, these seemingly innocuous statements meant: This appraiser isn’t hitting the numbers we need to do these deals; use our favorite appraiser instead, because he or she will.

Recently, the New York attorney general sued one appraisal-management firm, publicly criticized the appraisal practices at a major national lender, and questioned Fannie Mae and Freddie Mac oversight on this issue. Out of this controversy came a new agreement in February among the New York attorney general; the government-sponsored enterprises (GSEs); and the GSEs’ regulator, the Office of Federal Housing Enterprise Oversight (OFHEO).

Part of that agreement is a Home Valuation Code of Conduct. Lenders that don’t follow the procedures and practices set forth in this code won’t be able to sell loans to Fannie Mae and Freddie Mac after January 2009.

The new code

The new code of conduct, like the interagency guidelines before it, prohibits commissioned loan officers from selecting appraisers or influencing their reports. But the code goes further, saying the GSEs won’t buy mortgages from wholesalers if they let their mortgage brokers order appraisals. It also cuts off lenders that use staff appraisers or order appraisals from captive vendor-management companies or appraisal-management companies that employ staff appraisers.

Clearly, these are all steps in the right direction. Particularly important is closing the enormous loophole that had let mortgage brokers use their favorite appraisers to make their deals work. Interestingly, there is at least one business practice that the code missed and the Uniform Standards of Professional Appraisal Practices (USPAP) requires: providing appraisers with sales contracts for first mortgages. If we really want appraisers to arrive at a true value without any prompting, why give them the precise number we ’re trying to hit?

Whether these rules stick this time around will depend upon whether the GSEs and the federal agencies are serious about enforcement, and what will be required to demonstrate compliance. New policies alone won’t do it. Just hiring appraisal-management companies, apparently, doesn’t insulate appraisers from pressure. So how do we as an industry finally put an end to a problem that we first acknowledged and outlawed 20 years ago?

How to end appraisal pressure for real

Making adherence to the code a condition of selling to the GSEs certainly means it will get the industry’s full attention. In this market , conforming is the only game in town. But a number of other forces are aligning this time around. I suspect that the New York attorney general’s suit will prompt appraisal-management companies to take a tougher stance with clients, and remember the main reason they ’re in business is to prevent inflated appraisals.

The alleged behavior, recounted in the New York attorney general’s suit, is simply a snapshot, taken out of context, of what happens all too often in appraisal-management company engagements. A lender’s senior management sees the advantages and decrees that the company will use an appraisal management company; channel management agrees, then goes right ahead and undermines the process. As with the accounting firms after Enron and the telecom failures, my guess is that appraisal-management companies have now seen the light and realize that while making their clients happy is good, staying in business is better.

Also, mortgage lenders have just relearned a very painful lesson: Collateral is a critical part of the underwriting equation. Ignore it at your peril. And for years, that ’s pretty much what happened. As an industry, we told ourselves the only number we needed to look at in a mortgage transaction was a three-digit number followed by FICO®. After all, property values only go one way, right?

This kind of thinking was responsible for many of our biggest mistakes: 100 percent loan-to-value (LTV) ratios, negative-amortization products, on-the-spot home-equity line of credit (HELOC) deals, and so on.

Today, our industry’s obsession with speed (and cost) has been replaced by caution. Suddenly vendors are not hearing that much about automated valuation model (AVM) cascades. On the origination side of the business, no one is talking about AVMs or desktop appraisals. Full appraisals are making a comeback , even in refis and in home equity.