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Realty fervor takes aim at reality
by TA Webster http://www.cfnews13.com/Business/LocalBusinessHeadlines/2009/6/24/homeowner_wins_foreclosure_fight_in_court.html
A large number of mortgage notes were securitized during the housing run-up. Borrowers simply believed they were taking on a mortgage but in essence they were issuing a (non-negotiable) securities instrument which caused massive harm to investors all over the world, sent the US economy into a tailspin, and ushered out the era and the idea of "free market" capitalism. Mortgage companies originating securitized loans (and their assigns) earned
undisclosed compensation well above their normal remuneration by way of swap, trade, cross-collateralizing, cross-insuring, bailout funds and other such spoils. These notes were the get-away vehicle being used to commit financial fraud on third party
investors under the guise of A rated securities. During the process, mortgage notes were bundled and diced up into tranches. This means that underneath a thin layer of quality notes based on quality appraisals lies a pool of toxic junk based on hyper-inflated appraisals. A ticking financial time bomb ready to implode. Imagine putting an
apple, orange and banana in a blender, then after mixing them up trying
to pull out the whole apple, it just doesn't happen. This is the reason why when it comes to pursuing foreclosure actions they
(most mortgage servicers) cannot produce the original note. More than likely the notes were lost or destroyed in an attempt to avoid implication & liability in greater frauds as they relate to RESPA, TILA, UCC Code, SEC & RICO violations. In order to have legal standing the party seeking foreclosure must prove that they are the "holder in due course". If you do not identify the proper parties entitled to claim a lien on the property, there stands a great chance for future claim of lien and thus a title defect is created which penalizes the homeowner a great deal. There may be other legal title issues at stake as well. MERS is a prime example of how corporate entities would bypass the process of properly transferring and recording liens in public record. MERS allowed lenders to swap
and trade notes without paying the appropriate assignment and transfer taxes which cheated local and state agencies out of hundreds of millions of
dollars I'm quite sure. In addition, Real Estate Appraisers have been lining up to
tell their stories about pressure to "hit the number" on appraisals or fear
losing work. A lot of honest appraisers left or were driven from their
industry by pressure from their customers, AMC's (Appraisal Management Companies) and AVM's (Automated
Valuation Models). It amounts to usury on the consumer. We rescinded our loan under the Federal Truth In Lending provision. The TILA
statute of limitation time clock does not start ticking until the homeowner
is aware of the full scope of the violation. A great many of the newer
loans were securitized and legal/title issues apply to a majority of
them. I have worked as a title examiner for Lawyers Title and am
very familiar with the technical details on the chain of title,
mortgage liens, assignments and discharges. Literally
MILLIONS of Americans have walked away from their homes without
knowing who owns their note (the holder in due course). This is an
absolute must have - they must produce it, and it must be an original,
not a photocopy. There have been situations where consumers have paid
their mortgage servicer (in full) and a separate party comes forward
claiming to be the owner of the note and demanding payment. It happens! A great resource to learn more about the topic can be found
here; www.livinglies.wordpress.com Neil Garfield is one of the leading
speakers on the the legal ramifications of these securitized loans. Also check out www.mariokenny.wordpress.com. The true identity of the lender has
been hidden from the borrower and the borrower cannot deal in good
faith when dealing with their mortgage servicer who has no legal standing and is not the holder in due course. Servicers have no
vested interest in helping the consumer (homeowners) and have the
intent of pushing people out of their homes, as evidenced by the the
story above. So why to this day are foreclosures being rammed through
the legal system without first seeking to protect the rights of US Citizens
to due process as written in the 14th Amendment;
"No State shall make or enforce any
law which shall abridge the privileges or immunities of citizens of the
United States; nor shall any State deprive any person of life, liberty,
or property, without due process of law; nor deny to any person within
its jurisdiction the equal protection of the laws".
A Credit Crisis or a Collapsing
Ponzi Scheme?
The Two Trillion Dollar Black Hole
Purge
your mind for a moment about everything you’ve heard and read in the
last decade about investing on Wall Street and think about the
following business model:
You
take your hard earned retirement savings to a Wall Street firm and they
tell you that as long as you “stay invested for the long haul” you can
expect double digit annual returns.
-
You
never really know what your money is invested in because it’s pooled
with other investors and comes with incomprehensible but legal looking
prospectuses.
-
The
heads of these Wall Street firms have been taking massive payouts for
themselves, ranging from $160 million to $1 billion per CEO over a
number of years.
-
As
long as new money keeps flooding in from newfangled accounts called
401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds
(each carrying ever greater restrictions
for withdrawing your money and ever greater opacity) everything appears fine on the surface.
–
And
then, suddenly, you learn that many of these Wall Street firms don’t
have any assets that anybody wants to buy. Because these firms are both
managing your money as well as having their own shares constitute a
large percentage of your pooled investments, your funds begin to
plummet as confidence drains from the scheme.
Now consider how Wikipedia describes a Ponzi scheme:
“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’)
to investors out of the money paid in by subsequent investors,
rather than from net revenues generated by any real business.
It is named after Charles Ponzi…
One
reason that the scheme initially works so well is that early investors
– those who actually got paid the large returns – quite commonly
reinvest (keep) their money in the scheme (it does, after all, pay out
much better than any alternative investment).
Thus those running the scheme do not actually have to pay out
very
much (net) – they simply have to send statements to investors that show
how much the investors have earned by keeping the money in what looks
like a great place to get a high return. They also try to minimize
withdrawals by offering new plans to investors, often where money is
frozen for a longer period of time…
The catch is that at some point one of three things will happen:
(1) the promoters will vanish, taking all the investment money (less payouts) with them;
(2)
the scheme will collapse of its own weight, as investment slows and the
promoters start having problems paying out the promised returns (and
when they start having problems, the word spreads and more people start
asking for their money, similar to a bank run);
(3) the scheme is exposed, because when legal authorities
begin examining accounting records of the so-called enterprise they find that many of the ‘assets’ that should exist do not.”
-
Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1.
In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused
through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing,
the promoters are standing at the elbow of the President-Elect
in
press conferences (Citigroup promoter, Robert Rubin); they are served
up as business gurus on the business channel CNBC (former AIG CEO and
promoter, Maurice “Hank” Greenberg);
they
are put in charge of nationalized zombie firms like Fannie Mae (Herbert
Allison, former President of Merrill Lynch); they are paying $26
million and $42 million, respectively, for new digs at 15 Central Park
West in Manhattan, where their chauffeurs have their own waiting room
(Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former
CEO of Citigroup, who put his penthouse in the name of his wife’s
trust,
perhaps
smelling a few pesky questions ahead over the $1 billion he sucked out
of Citigroup before the Fed had to implant a feeding tube).
We are
definitely seeing all the signs of outcome 2: the scheme is collapsing
under its own weight; there are panic runs around the globe wherever
Wall Street has left its footprint. But outcome 3 is the most
fascinating area of departure from the classic Ponzi scheme.
Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later.
They
found worthless assets along with debts hidden off the balance sheet
instead of real depositor funds. Instead of arresting the perpetrators
and shutting down the schemes, Federal authorities have developed their
own new schemes and pumped over $2 trillion of taxpayer money into
propping up the firms while leaving the schemers in place.
Equally
astonishing, Congress has not held any meaningful investigations. This
has left many Wall Street veterans wondering if the problem isn’t that
the firms are “too big to fail” but rather “too Ponzi-like to prosecute.”
Imagine the worldwide reaction to learning that all the claptrap coming
from U.S. think-tanks and ivy-league academics over the last decade
about efficient market theory and deregulation and trickle down was
merely a ruse for a Ponzi scheme now being propped up by a U.S.
Treasury Department bailout and loans from our central bank, the
Federal Reserve.
Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t.
On May
20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of
Information Act request (FOIA) with the Federal Reserve asking for
detailed information relevant to whom the central bank was giving these
massive loans and precisely what securities these firms were posting as
collateral.
Bloomberg
also wanted details on “contracts with outside entities that show the
employees or entities being used to price the Relevant Securities and
to conduct the process of lending.”
Heretofore,
our opaque central bank had been mum on all points. By law, the Federal
Reserve had until June 18, 2008 to answer the FOIA request. Here’s what
happened instead, according to the Bloomberg lawsuit:
On June
19, 2008, the Fed invoked its right to extend the response time to July
3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was
processing the request. The Fed rang up Bloomberg again on August 15,
2008, wherein Alison Thro, Senior Counsel and another employee, Pam
Wilson, informed the business wire service that their request was going
to be denied by the end of September 2008.
No further response of any kind was received, including the denial. On
November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board
of Governors of the Federal Reserve, asserting the following:
“The government documents that Bloomberg seeks are central
to
understanding and assessing the government’s response to the most
cataclysmic financial crisis in America since the Great Depression. The
effect of that crisis on the American public has been and will continue
to be devastating. Hundreds of corporations are announcing layoffs in
response to the crisis, and the economy was the top issue for many
Americans in the recent elections.
In
response to the crisis, the Fed has vastly expanded its lending
programs to private financial institutions. To obtain access to this
public money and to safeguard the taxpayers’ interests, borrowers are
required to post collateral.
Despite
the manifest public interest in such matters, however, none of the
programs themselves make reference to any public disclosure of the
posted collateral or of the Fed’s methods in valuing it.
Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding
the kind of collateral received, how it was valued, or by whom.”
Is evidence that Bloomberg News is not engaging in hyperbole
when it uses the word “cataclysmic” in a Federal court filing,
consider the following price movements of some of these giant financial institutions.
(All current prices are intraday on November 12, 2008):
American International Group (AIG):
Currently $2.16; in May 2007, $72.00
Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing;
share price in April 2007, $159
Fannie Mae: Currently 65 cents; in June 2007 $69.00
Freddie Mac: Currently 79 cents; in May 2007 $67.00
Lehman Brothers: Currently 6 cents; in February 2007, $85.00
What
all of the companies in this article have in common is that they were
writing secret contracts called Credit Default Swaps (CDS) on each
other and/or between each other. These are not the credit default swaps
recently disclosed by the Depository Trust and Clearing Corporation
(DTCC).
These
are the contracts that still live in darkness and are at the root of
why the Wall Street banks won’t lend to each other and
why their share prices are melting faster than a snow cone in July.
A
Credit Default Swap can be used by a bank to hedge against default on
loans it has made by buying a type of insurance from another party. The
buyer pays a premium upfront and annually and the seller pays the face
amount of the insurance in the event of default.
In the
last few years, however, the contracts have been increasingly used to
speculate on defaults when the buyer of the CDS has no exposure to the
firm or underlying debt instruments.
The CDS contracts outstanding now total somewhere between
$34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness.
It is
also quite likely that none of the firms that agreed to pay the
hundreds of billions in insurance, such as AIG, have the money to do so. It
is also quite likely that were these hedges shown to be uncollectible
hedges, massive amounts of new capital would be needed by the big Wall
Street firms and some would be deemed insolvent.
Until
Congress holds serious investigations and hearings, the U.S. taxpayer
may be funding little more than Ponzi schemes while companies that
provide real products and services, legitimate jobs and contributions
to the economy are left to fail.
Pam Martens worked on Wall Street for 21 years;
she has no security position, long or short, in any company mentioned in this article.
She writes on public interest issues from New Hampshire.
She can be reached at pamk741@aol.com
New in the Print Edition of CounterPunch
Greenspan’s
Confession. For his 20-year stretch as Fed chairman, they all fawned on
him – presidents, Congress, the press. Only a handful of left
economists said he was pushing the economy over the cliff.
Now
Greenspan admits it in a humiliating confession. As the world’s
financial structure tumbles in ruins, guess what? “I found a flaw in
the model… To the extent that I figure out where it happened and why, I will change my views..”
Read
Frederic Claremont’s savage assessment of the fool who has plunged
millions into misery. Also in our new issue: Bill Hatch on the story of
one foreclosure; Kristian Williams on police torture in Chicago..
________________________________________________
Reports of Stores Closings
· Circuit City stores…. most recently opened.
· Ann Taylor- 117 stores nationwide are to be shuttered.
· Lane Bryant, Fashion Bug, and Catherine’s to close 150 stores nationwide.
· Eddie Bauer to close stores 27 stores and more after January.
· Cache will close all stores.
· Talbots closing down all stores.
· J. Jill closing all stores.
· GAP closing 85 stores.
· Footlocker closing 140 stores, more to close after January.
· Wickes Furniture closing down.
· Levitz closing down remaining stores.
· Bombay closing remaining stores.
· Zales closing down 82 stores and 105 after January..
· Whitehall closing all stores.
· Piercing Pagoda closing all stores.
· Disney closing 98 stores and will close more after January.
· Home Depot closing 15 stores.
· Macys to close 9 stores after January.
· Linens and Things closing all stores.
· Movie Galley closing all stores.
· Pacific Sunware closing stores.
· Pep Boys closing 33 stores.
· Sprint/ Nextel closing 133 stores.
· JC Penney closing a number of stores after January..
· Ethan Allen closing down 12 stores.
· Wilson Leather closing down all stores.
· Sharper Image closing down all stores.
· K B Toys closing 356 stores.
· Loews to close down some stores.
· Dillard’s to close some stores.
Mervyn’s Department stores closing.
Filed under: CDO, Eviction, GTC | Honor, Mortgage, foreclosure | Tagged: foreclosure defense,
By PAM MARTENS pamk741@aol.com
http://counterpunch.org/martens11132008.html
By TA Webster
Did we not have enough land left in
America to keep a decent supply of homes on hand for 'working people'
at 'working people' prices?
Was it excessive land-use
regulations, perhaps? Greed and profit, maybe. Media and government
propaganda blaring 'record gains' all over the damn country - could be.
Appraisal regulation (or lack thereof) - you're getting warmer!
Why
wasn't anyone warning American homebuyers about the potential for an
overheated real estate market until it was way too late? Where was the
media's objective eye? Why weren't government officials ringing the
alarm bell, they are the authority on lending and appriasal regs aren't
they?
Typically an investor loan requires a minimum of 10% down
- the little white lie in all of this was someone telling the lender
they would be an 'owner occupant', turning on a utility bill or two in
their name and slipping under the radar to achieve 100%+LTV without
coming out of pocket for the typical investor down payment. This was
the profile for many subprime borrowers who flipped and sold before the
crash. Subprime mortgages served many investors and made 'flipping'
easier. A majority of the sub-prime borrowers were not low-income
borrowers.
Many people I've talked to who purchased a new home
within the last several years never even received an appraisal. Buyers
who financed through builder owned mortgage companies assumed the real
estate appraisal (that they paid for) was done with their best interest
in mind - WRONG! THERE IS NO CONSUMER PROTECTION REGARDING REAL ESTATE
APPRAISALS WHATSOEVER!
Lenders had carte blanche for doling
out 'overvalued' loans during the big run up in housing costs while
simultaneously avoiding or blackballing/blacklisting the honest real
estate appraisers... or wasn't anyone in the banking world aware that
comps were being jacked up by speculators, AMC's and AVM's. Valuation
and data portals are owned/rigged by political/corporate pirranah - how
much ownership of the data portals lies in the hands of our country's
politicians?
AVM's don't know market dynamics - they are
computer generated algorithms and do not think like a human appraiser
would. Bottom line is that numbers can be skewed to suit the need of
the appraisal client BUT A REAL LIVE APPRAISER knows the market and the
market dynamics. What we need is legislation that protects the citizens
of the United States of America from sh**ty wasteful legislation(s)
endorsed by FNMA & FHLMC, Treasury Dept., etc. that is laden with
'accounting irregularities' and is nowhere near the best interest of
taxpayers.
Think about it, if I screw up on 'my' job to the
tune of billions of dollars - I GET FIRED! Look at what happens to guys
like Angelo Mozillo, Richard Fuld, Frank Raines, James Cayne, etc. etc.
etc.
It is ironic that 'we the people' are some of the most manipulated on earth. It is equally odd that even though we 'think' we're part of the greatest democracy the world has ever known - we do not actually participate in a democracy at all; nor do we recognize one when we see it. These facts attest to how thoroughly the 'American people' have been propagandized by corporate media and govt. 'talking heads'. Americans are slaves to a system that preys upon them and turns around and tells them how well they are treated. $154 8/9/07: Fed and European Central Bank inject $154 billion into financial system. $38 8/10/07: Fed injects another $38 billion. $17.25 8/23/07: Fed injects $17.25 billion. $31.25 9/6/07: Fed adds $31.25 billion in reserves to US money markets. $29 3/24/08: Fed agrees to lend $29 billion to facilitate Bear Stearns acquisition by JPMorgan Chase. $200 3/27/08: Fed injects $200 billion of Treasury securities. $300 7/30/08: $300 billion Federal Housing Administration bailout passed. $200 9/7/08: Quasi-nationalization of Fannie Mae and Freddie Mac accompanied by a Treasury pledge to back $200 billion of their losses. $155 9/16/08: Fed agrees to pay $85 billion for 80% stake in aig. Also adds $70 billion in cash to keep credit flowing after Lehman Brothers fails. $235 9/18/08: Fed injects $180 billion to shore up money markets and $55 billon in overnight lending to US banking system. $480 9/29/08: Fed announces it will supply $330 billion to other central banks, triples supply of corporate short-term loans to $225 billion. $700 10/3/08: $700 billion bailout fund passed. $37.8 10/8/08: Fed authorizes another $37.8 billion for aig. $540 10/21/08: Fed injects $540 billion into money market funds. $144 10/27/08: Fed opens emergency commercial paper window, lends $144 billion in three days. $100 11/6/08: $100 billion added to commercial paper facility. $27.5 11/10/08: Fed gives aig another $27.5 billion. total cost: $3.4 trillion Annual interest (at 5%): $170 billion ***after AIG and Warren Buffet’s berkshire hathaway, RE General re-insurance companies were being investigated for FRAUD by DOJ atty Maguire, the investigation was shut down and the new DOJ Bush Rove hired dismissed the investigations (with the FBI screaming) Thank God for Tom Gber’s Oversight subcommittee complaint on Capitol Hill. Still, if you ans I knew that AIG et all re-insurance companies were hiding their losses, we never would have allowed the Bush administration to give them the $100 BILLION bailout! And then give a swiss company run by EX Senator Phill Gramm (McCain’s campaign advisor) money for his failed NON USA company. PNC from Florida, Jeb’s friends that give money to his foundations in Florida? They also got money to BUY OTHER BANKS after their billion dollar investment losses. I see something criminal here, do you? (From MJ $3.43 Trillion & Counting)
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]
- Lack of net worth for many institutions as they entered the 1980s, and a wholly inadequate net worth regulation.
- 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.
- Absence of an ability to vary the return on assets with increases in the rate of interest required to be paid for deposits.
- 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.
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- The lack of appropriate, accurate, and effective evaluations of the savings and loan business by public accounting firms, security analysts, and the financial community.
- 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.
- Federal and state examination and supervisory staffs insufficient in number, experience, or ability to deal with the new world of savings and loan operations.
- 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]
- The Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC) were abolished.
- The Office of Thrift Supervision (OTS), a bureau of the Treasury Department, was created to charter, regulate, examine, and supervise savings institutions.
- The Federal Housing Finance Board (FHFB) was created as an independent agency to oversee the 12 federal home loan banks (also called district banks).
- 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.
- 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.
- 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
Notes
- ^ a b "Financial Audit: Resolution Trust Corporation's 1995 and 1994 Financial Statements" (PDF), U.S. General Accounting Office (July 1996).
- ^ a b c "Housing Finance in Developed Countries An International Comparison of Efficiency, United States" (PDF), Fannie Mae.
- ^ "Lessons of the Eighties: What Does the Evidence Show?" (PDF), FDIC (September 18, 1996).
- ^ 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.
- ^ fact=January 2008
- ^ Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin, 123-124. ISBN 0-256-13948-2.
- ^ a b http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf
- ^ "LESSONS FOR FEDERAL PENSION INSURANCE FROM THE SAVINGS AND LOAN CRISIS" (PDF), FEDERAL RESERVE BANK OF ST. LOUIS REVIEW (JULY/AUGUST 2006).
- ^ Home State Savings Bank's Failure - Ohio History Central - A product of the Ohio Historical Society
- ^ Dan Nowicki, Bill Muller (2007-03-01). "John McCain Report: The Keating Five", The Arizona Republic. Retrieved on 2007-11-23.
- ^ 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
- ^ (September-October 1989) FIRREA — It's Not a New Sports Car. The Credit World, 20.
- ^ http://www.fdic.gov/bank/historical/history/3_85.pdf
- ^ http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
- ^ 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
-By TA Webster
It's funny... towards the end of the video (below) they play an old news clip that talks about the S&L crisis.
Washington has been spreading taxpayers wealth around in Iraq & the Middle East at breakneck speed. We're mortgaged to the hilt... and told to "stop whining" about it. We taxpayers recently wrote a $700 Billion Dollar check and (if i'm not mistaking) that is spreading the wealth. We're going to need three more America's to pay back what we owe China. Will the national debt ever be repaid? Will the SPP & Amero crush the US dollar? If so, when do you think we'll hear about it?
((at 4:35 on the video)) "Taxpayers are up in arms with the proposed bailout of Lincoln Savings and Loan. The failure of the institution resulted in a $2.6 Billion Dollar Loss all left in the lap of the American people". Lincoln Savings and Loan collapsed in 1989, at a cost of over $3 billion to the federal government. Some 23,000 Lincoln bondholders were defrauded and many elderly investors lost their life savings.
Ain't that some s***... sound familiar? The sad part is that these guys (Keating, Milken, et al) targeted seniors with their toxic poison.
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?
- Charles H. Keating Jr. and the Lincoln Savings and Loan scandals of the 1980's
Washington Monthly - MARCH 1997 By L.J. Davis
"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.
By TA Webster "A lot of us saw this train wreck coming" - John McCain.
((( at 8:34 on the video )))
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 ;~)
Do the big three automakers deserve $25 billion in federal aid?
With just two weeks in the current session of Congress left to land potentially life-saving federal loans, Detroit's car companies and Michigan's congressional delegation were in a state of chaos. Michigan lawmakers trying to sell the deal to a skeptical Congress were frustrated by what they saw as a lack of effort from the automakers, several congressional sources tell NEWSWEEK. Auto execs were annoyed that they were being lumped with the Wall Street bailout crowd, which didn't help Detroit's plea for $25 billion in low-cost federal loans to see it through its cash crisis. The acrimony came to a head in a tense conference call Sept. 11 involving 25 power brokers in Washington, D.C., and Detroit, including some of the Big Three CEOs, according to Congressional sources. As congressmen and their staffers debated the minutia of how to craft the legislation for the loans, the CEOs on the other end of the line kept asking everyone to speak up. "We were very much in the weeds, which is not a good idea with a conference call of 25 people," says Rep. Dave Camp, a Republican from Midland, Mich. "It's been difficult to get consensus [with the carmakers]. It's been very frustrating."
With bad bailout-buzz in the air, Detroit's difficult-sell job has become even more daunting. Despite GM CEO Rick Wagoner's insistence to a Senate panel last week that "I'm not here today asking for any bailouts," that's exactly how many in Congress—and throughout America—saw it. The auto bosses would like to cast the $25 billion as something that should be a done deal since Congress authorized that financial assistance in last year's energy bill, which required automakers to increase the car's average fuel economy by 40 percent, to 35 miles per gallon, by 2020. The only problem: Congress never actually funded the $25 billion, which is what Detroit is desperately seeking before Congress adjourns Sept. 26. But a common view in Washington and elsewhere is that Detroit drove itself to desperation with its dependence on SUVs and pickup trucks. And now, critics say, the not-so-Big Three don't deserve federal help to overhaul factories from churning out gas guzzlers to make mileage misers. "They're not too big to fail," Sen. Richard Shelby, the top Republican on the Senate Banking Committee, told CNBC last week. "I don't see [Detroit's woes] as a national problem. I see it as their problem."
It wasn't supposed to be this hard for Detroit. Federal aid for America's automakers became politically plausible this summer when Michigan emerged as a potential swing state in the presidential election. The economically ravaged state has gone blue in the last four presidential elections, but it also went for John McCain over George W. Bush in the 2000 Republican primary, giving the current GOP candidate a shot at turning the state. Polls show Michigan in a statistical dead heat. Detroit execs hoped to leverage Michigan's moment to land some of the largesse the federal government has lavished lately on the likes of Bear Stearns, Fannie Mae and Freddie Mac, so they dusted off the old argument about how important the auto industry is to the U.S. economy. Nearly 15 million people's livelihoods—one in 10 jobs in America—are connected to the auto industry, according to the Center for Automotive Research. And automakers also highlighted how many of those millions live in the toss-up states of the upper Midwest. Before long, Barack Obama and then McCain endorsed extending Detroit $25 billion in federal loans with interest rates around 5 percent, versus the up to 20 percent interest that the junk-rated companies would pay on the open market (savings: roughly $100 million on every $1 billion borrowed).
Then Wall Street imploded, and in this anemic economy, taxpayers likely aren't taking kindly to the idea of multibillion-dollar bailouts of Fannie, Freddie and, just this week, insurance giant AIG. When the federal government didn't step in to save Lehman Brothers from failure, sentiment hardened against helping Detroit. "The timing of these auto loans couldn't be worse with all these Wall Street issues," says Congressman Mike Rogers, a Republican from Howell, Mich. What's more, the cost to taxpayers of covering the auto companies' low-interest loans has doubled to $7.5 billion, the Congressional Budget Office said this week, because the risks are rising that the car companies could default. "These are very high-risk loans now," says University of Maryland business professor Peter Morici. "And they will just put off Detroit's day of reckoning."
Against those headwinds, Detroit's sputtering start in making its case to Capitol Hill could prove pivotal. Sure, Chrysler showed up on Capitol Hill a couple weeks ago with some golf-cart-like electric vehicles, and GM provided fleets of green vehicles for the delegates at the political conventions this summer. But the subtle symbolism of those moves—much like GM's introduction of its Chevy Volt plug-in hybrid in Detroit Wednesday—are not the kind of hardball politics necessary to win-over lawmakers who've run out of patience with Detroit. Michigan lawmakers have complained that Detroit lobbyists were on vacation in August when they should have been twisting arms in Congress. "It's difficult for the auto industry to understand how unsympathetic members [of Congress] are from other parts of the country," says Congresswoman Candice Miller, a Republican from suburban Detroit's Macomb County, home of the famous Reagan Democrats. "People look at them like they're the tobacco industry." Added another Michigan congress member, who asked not to be named for fear of hurting relations with Detroit's automakers, "People don't believe anymore that what's good for GM is good for America. I'm not sure that GM, Ford and Chrysler have caught up with that yet."
GM President Fritz Henderson contends that Detroit has been working hard to secure the federal loans and wonders who his lobbyists would have called on in August. "Congress just came back a couple weeks ago," he told NEWSWEEK. "Who was there in Washington in July and August?" He seemed perplexed that getting a $25 billion loan has become such a big deal, because it was authorized in the 2007 energy bill. "I thought this was part of the deal when the '07 legislation went forward," he said. "Why have something in the legislation if you don't intend to fund it? It doesn't seem logical. It's like you're just kidding. And this is deadly serious."
That attitude, though, reveals a certain naiveté about the ways of Washington, says Congresswoman Miller. "The process here is a two-step dance," she says. "We authorize all kinds of things that never get [funded]. You have to follow through." Detroit seemed to have difficulty grasping that Washington reality. "The auto industry has been slow to the starting line," says Miller.
Now as the race for a rescue enters its final lap, Motown is putting the pedal to the metal. This week, the big wheels from Detroit are descending on Washington. High-octane salesmen like Bill Ford Jr., Henry's great-grandson and executive chairman of the family firm, and the Detroit Three CEOs, are all working the halls of Congress. "I hope we've turned the corner," says Congressman Camp. "It took longer than it should have."
The Detroit gang has refined its pitch in a way that would make the presidential candidates proud. Saving Detroit does more than preserve millions of jobs, the new argument goes; it helps America become energy-independent. Here's the pitch: The electrification of the automobile is inevitable, so batteries are becoming the new oil. Currently, Japan is the world leader in car-battery production, thanks to hot-selling models like the Toyota Prius (even Detroit's hybrids run on Japanese batteries). Without federal funding to develop electric cars and the batteries that power them, America will become dependent on another foreign power to fuel its mobility. "Are we trading our dependence on foreign oil to a dependence on batteries built in foreign countries?" asks Chrysler Vice Chairman Jim Press, a former Toyota exec who will be in Washington next week making his case.
That new approach is a clever strategy, showing that Detroit isn't deaf to the politics of persuasion. But has it come in time? And if it hasn't, is Detroit doomed without the federal aid? Press says Chrysler needs the loans to fund the green vehicles that give his company "an opportunity to have a future." Henderson is more circumspect when asked whether GM will fail without these loans. "We don't have [the loans] in our budget today," he says. "It's not like I'm assuming that somebody is going to disburse billions of dollars to me in 2008." And if Congress doesn't come through? "We develop contingency plans," Henderson says, plans that likely include additional painful cutbacks. "In the end," he says, "that's what we need to do to fight another day."
The question remains, though: Did Detroit put up enough of a fight to win its Washington rescue?
http://www.newsweek.com/id/159536
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
Weak rules cripple appraiser oversight
By MITCH WEISS – Aug 17, 2008
CHARLOTTE, N.C. (AP) — As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal — the real estate appraisal — was undermined from within.
After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals.
But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud.
And despite ample evidence appraisers are pressured into inflating home values — sometimes to prices in support of loans that are more than buyers can afford — the federal regulators charged with protecting consumers have thus far made a conscious choice not to act.
"The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year. "It's amazing that the system ever worked at all."
The AP conducted dozens of interviews and reviewed thousands of state and federal documents, and found:
_ Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. Some complaints sat uninvestigated for as long as four years. As a result, hundreds of appraisers accused of wrongdoing remained in business.
_ The only tool federal regulators have to force states into compliance is so draconian — it would effectively halt all mortgage lending in a state — that it has never been used.
_ Both state appraisal boards and the federal agency tasked with their oversight are chronically understaffed, many with only one full-time investigator to handle the hundreds of complaints that arrive each year. Some don't even have an investigator.
"The appraisal reforms of the late 1980s were good reforms," said Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School of Business. "But they were not sufficient to prevent what we have seen ... because regulation without teeth is not regulation."
To be sure, there are many causes of the housing crisis — lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay and investment bankers who bought and sold risky mortgage-backed securities. A few of the worst offenders — appraisers included — have been put behind bars.
But experts and industry insiders, including appraisers who feel betrayed by colleagues who don't follow the rules, believe the failure to effectively monitor the real estate appraisal industry contributed to housing's collapse.
This is the way the system is supposed to work:
Typically, an appraiser receives an order from a real estate agent, lender or mortgage broker to inspect a property. Based on a physical inspection of the home and comparable sales in the area, they develop an estimated value for the property. That figure is used by banks to set the home's value as collateral for the mortgage loan.
Appraisers are supposed to come up with a value free of any outside pressure. But more than three dozen appraisers nationwide interviewed by the AP said they often felt pushed by a real estate agent or mortgage broker to fraudulently inflate a property's value. They supplied the AP with documents from lenders asking them to "hit a number."
Documents obtained by the AP also show that hundreds of appraisers complained to federal and state agencies about such fraudulent inflation of property values.
The appraisal system has broken down before. In 1989, Congress concluded that "faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the saving and loan crisis." And it passed the Financial Institutions Reform, Recovery and Enforcement Act.
Under the law's reforms, a private group known as the Appraisal Foundation wrote the rules governing appraisers. The law also recommended that states begin licensing appraisers and disciplining those who break the rules.
A federal agency called the Appraisal Subcommittee, an independent federal agency that answers to Congress, would conduct field reviews and audits, and maintain a national registry of appraisers — including dossiers on those who break the rules.
But problems plagued the system from the start. It took years for some states to set up the independent review boards to supervise appraisers or hire personnel to investigate complaints. Even today, eight states still do not require appraisers to obtain a license or certification.
"We got to this point by a lack of enforcement. ... The public has the right to expect the appraisal boards are taking care of that problem," said Bob Ipock, an appraiser from Gastonia, N.C., who is a critic of the current system. "And they are not. They're looking the other way."
The Appraisal Subcommittee is supposed to help states remove from the system those appraisers who agree to "hit a number." But it has only four employees to conduct field reviews and audits of 50 states and four U.S. territories, and hasn't even had a permanent director since the agency's former chief retired at the end of last year.
Following Weinberg's subsequent departure in February as acting director, none of the agency's current employees — including interim director Vicki Ledbetter — returned more than a dozen messages left by the AP over a period of several months seeking comment.
When the agency does find a state failing to follow the law, the only tool available to force compliance is a death sentence known as "non-recognition" — a penalty that would ban all appraisers in that state from handling deals involving a federal agency.
"Do you know what that would have meant? The net effect is it would have effectively shut down mortgage lending in that state," former subcommittee director Ben Henson, who retired in December, told the AP. "To take that action would have been an unbelievable disruption to the economy. I wasn't going to do that."
When field reviews began in the 1990s, states were repeatedly warned that they were failing to comply with the law — warnings that continue to this day. But without the ability to issue fines or impose a less destructive punishment, the Appraisal Subcommittee is powerless. It has never taken any action against a state for not obeying the law.
And so, the violations stack up year after year, largely without consequence. In the last three years alone — when the nation's housing market went from boom to bust — 27 states or territories failed to investigate and resolve complaints within a year. In Washington D.C., the agency found last August that 32 of the district's 35 pending cases were older than two years. In Florida, almost 50 percent of 169 cases older than a year concerned appraisers involved in "fraud and flipping."
Faced with such backlogs, some states just give up. In New Hampshire, the state appraisal board decided in July 2006 to close all outstanding files dating to 2002 — some of which included allegation of fraud — because they "were too old to investigate."
The failings of the appraisal regulatory system and its impact on the nation's housing market led Andrew Cuomo, the New York attorney general, to reach a deal in March with Fannie Mae and Freddie Mac, which purchase mortgages from other financial institutions.
The agreement, which will take effect in 2009, will create a watchdog to monitor the appraisal business: Fannie Mae and Freddie Mac will spend $24 million to create the Independent Valuation Protection Institute, which will accept complaints from consumers and appraisers. It will also monitor the enforcement and report to Cuomo's office.
But such a system duplicates the regulations already in place, including the same lack of enforcement tools that led the existing system to failure. Cuomo didn't return repeated requests for comment. But Gary Taylor, an appraiser from New York who sits on the Appraisal Foundation board that writes qualification guidelines, doesn't see much hope for his success.
"There has to be effective enforcement of some sort. There has to be reality to it," Taylor said. "What are you going to do if there is pressure on appraisers? How are you going to penalize someone who puts that pressure on appraisers? Who's going to do it? Who's going to enforce it? They need to have that or it won't work." USS New York
The USS NEW YORK was built with 24 tons of scrap steel from
the World Trade Center .
She is the fifth in a new class of warship - designed for missions that include special operations against terrorists.
It will carry a crew of 360 sailors and 700 combat-ready Marines to be delivered ashore by helicopters and assault craft.
Steel from the World Trade Center was melted down in a foundry in Amite, LA to cast the ship's bow section.
When it was poured into the molds on Sept 9, 2003, “those big rough steelworkers treated it with total reverence”, recalled
Navy Captain Kevin Wensing.
“It was a spiritual moment for everybody there.”
Junior Chavers, foundry operations manager, said that when the trade center steel first arrived, he touched it with his hand and the 'hair on my neck stood up.' 'It had a big meaning to it for all of us,' he said. 'They knocked us down. They can't keep us down. We're going to be back.'
The ship's motto? 'Never Forget'
 Please share this with your friends so everyone can
see what we are made of in this country!
By TA Webster
It goes without saying that when one hears words of warning or better yet, words of wisdom - from someone coming forward to speak about consumer injustices that were taking place in the market... you'd think you would get an ounce of consideration. Look at this from a former REGIONAL VP in Houston TX Mark Zachary. My heart goes out to the families and children who will suffer and the US taxpayers who will end up paying the bill for such brash corporate ignorance. I bet Angelo Mozillo won't have to chip in.
Posted by: Jonathan Simpson | May 20, 2008 at 02:27 PM
Found Online at; http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2007/06/post.html
**********************************************************************************************************
I have recently sent this letter to my 2 Senators.
RE S.2452 This is an onerous cost to appraisers and doesn't solve anything. This is an attempt by lenders to shift higher costs to appraisers and reimburse the lender for their own dishonest practices.
As an appraiser, I have been making the case with statistics that the market began to deflate since August 15, 2005. I have added this information to my reports and all I got for my in-depth analysis was "Customer Service Investigations” (CSI), "Grinder Reviews”, "Pre-Benching" and demotion on the assignment rotation que” (List) by some of the largest lenders in America. My personal experience is typical of the few appraisers in this area who are competent, experienced and honest.
In order to get nominated to the "List" in the first place, you have to be deemed malleable enough to be a "Good Appraiser" or “on the same Team” or “Team Player” by a manager of Loan Production. During the process of becoming a "Good Appraiser" you must make several sows ear property reports seem like silk purse reports. After becoming a "Good Appraiser" or ........” you are then put onto the "Approved" Appraiser List. The list is often "Maintained" by a separate entity called an "Appraisal Management Company" (AMC). Generally the AMC is either controlled by significant volume or is a wholly owned subsidiary of the Lender. Their ostensible function is to maintain good appraisal practices and promote conformity with the "Uniform Standards of Professional Appraisal Practices" (USPAP). In actual practice this is a sham because The Vice Presidents of Loan Production is in charge and tells the AMC staff to promote those appraisers on the List who are still malleable enough to make his bonus bigger and better than the preceding years'.
If an appraisal doesn't hit the numbers and Loan Production Staff can't “earn” a fee they begin a systematic process of character assassination and slander against the appraiser. The tempo, stridency and level of involvement increases until they force "Customer Service Investigations" (CSIs). The Loan Production Staff considers itself to be the "Customer" of the AMC. I reiterate for emphasis; The "CSIs" are initiated when the Customer doesn't get the numbers they need to make a loan and “earn” a commission. Once I was CSI'ed because I took a picture of the posted “Condemned By the Health Department sign” and included it in the report. In another instance I was called a racist and was discriminating against Latinos. This is laughable because I served 2 years in the Peace Corps in Latin America and speak Spanish, too. In another instance I was CSI'ed because I refused to classify a vacant vermin infested structure as a vacation (second) home. (The owner had moved into a camping trailer next door.) It was at this time that my assignments began to diminish and soon culminated in complete stoppage after I refused to consider comparables in another newer neighborhood as comparable to the older property being appraised. To be honest I don't miss their business, but these are typical examples of how the Loan Production Staff/AMC's interact.
Next, as the process continues a “Grinder Review” is ordered by the AMC at the behest of the Customer. A “Grinder Review” is an in-depth appraisal review process that concentrates on finding insignificant deviations from the Customer's specifications, and which are almost always ignored when the appraisal report hits the numbers. As the process continues the "Grinder Reviews" are used by the Appraisal Management Company to document and justify the future action known as "Pre-Benching". "Pre-Benching" is the process of assigning appraisal requests which are more and more difficult to appraise and making them more and more distant. As the appraiser begins to either falter or reject assignments because of difficulty, distance, or legality the appraiser is assigned a lower number on a scale of 1- 5. which lowers his standing in the assignment rotation que. "Benching”, as defined, is not removal from the list, it is just demotion downward in the assignment rotation que, until there are no assignments of any consequence. The process is used to punish the offending appraiser who can't give them the numbers they need to make the loan and “earn” a commission.
As the process proceeds the offending appraiser is financially weakened until the appraiser is either forced to re-comply with the “conditions” or leave the business.
Under no circumstances should an appraiser ever ever try to assert independence because missed numbers, complaints about undue influence or refusal either due to legality, quality, distance or difficulty of the assignment will always initiate the CSIs, Grinder Reviews and the Pre-Benching process, again. When in England at a fairly large conference, Colin Powell was asked by the Archbishop of Canterbury if our plans for Iraq were just an example of 'empire building' by George Bush. He answered by saying, "Over the years, the United States has sent many of its fine young men and women into great peril to fight for freedom beyond our borders. The only amount of land we have ever asked for in return was enough to bury those that did not return."
You could have heard a pin drop. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Then there was a conference in France where a number of international engineers were taking part, including French and American. During a break one of the French engineers came back into the room saying, "Have you heard the latest dumb stunt Bush has done? He has sent an aircraft carrier to Indonesia to help the tsunami victims. What does he intended to do, bomb them?"
A Boeing engineer stood up and replied quietly, "Our carriers have three hospitals on board that can treat several hundred people; they are nuclear powered and can supply emergency electrical power to shore facilities; they have three cafeterias with the capacity to feed 3,000 people three meals a day, they can produce several thousand gallons of fresh water from sea water each day, and they carry half a dozen helicopters for use in transporting victims and injured to and from their flight deck. We have eleven such ships; how many does France have?"
You could have heard a pin drop. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A U.S. Navy Admiral was attending a naval conference that included Admirals from the U.S. , English, Canadian, Australian and French Navies. At a cocktail reception, he found himself standing with a large group of Officers that included personnel from most of those countries. Everyone was chatting away in English as they sipped their drinks but a French admiral suddenly complained that, "whereas Europeans learn many languages, Americans learn only English." He then asked, "Why is it that we always have to speak English in these conferences rather than speaking French?" Without hesitating, the American Admiral replied, "Maybe it's because the Brits, Canadians, Aussies and Americans arranged it so you wouldn't have to speak German." You could have heard a pin drop.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
AND THIS STORY FITS RIGHT IN WITH THE ABOVE... A group of Americans, retired teachers, recently went to France on a tour. Robert Whiting, an elderly gentleman of 83, arrived in Paris by plane. At French Customs, he took a few minutes to locate his passport in his carry on. "You have been to France before, monsieur?" the customs officer asked sarcastically. Mr. Whiting admitted that he had been to France previously.
"Then you should know enough to have your passport ready."
The American said, "The last time I was here, I didn't have to show it." "Impossible, Americans always have to show your passports on arrival in France !" The American senior gave the Frenchman a long hard look. Then he quietly explained, "Well, when I came ashore at Omaha Beach on D-Day in '44 to help liberate this country, I couldn't find any Frenchmen to show it to." You could have heard a pin drop. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ What Is a Veteran? A "Veteran" -- whether active duty, discharged, retired, or reserve -- is someone who, at one point in his life, wrote a blank check made payable to "The United States of America," for an amount of "up to, and including his life." That is honor, and there are way too many people in this country today who no longer understand that fact. -unknown author
Gone but not forgotten..........
Captain Kangaroo passed away on January 23, 2004 as age 76 ,
Which is odd, because he always looked to be 76. (DOB: 6/27/27 ).
His death reminded me of the following story.
Some people have been a bit offended that the actor, Lee Marvin,
Is buried in a grave alongside 3- and 4-star generals at Arlington National Cemetery .
His marker gives his name, rank (PVT) and service (USMC). Nothing else.
A guy who was only a famous movie star who served his time,
Why the heck does he rate burial with these guys?
Well, following is the amazing answer:
I always liked Lee Marvin, but didn't know the extent of his Corps experiences.
In a time when many Hollywood stars served their country in the armed forces
Often in rear echelon posts where they were carefully protected,
Only to be trotted out to perform for the cameras in war bond promotions,
Lee Marvin was a genuine hero. He won the Navy Cross at Iwo Jima ..
There is only one higher Naval award... The Medal Of Honor!
If that is a surprising comment on the true character of the man,
He credits his sergeant with an even greater show of bravery.
Dialog from 'The Tonight Show with Johnny Carson': His guest was Lee Marvin.
Johnny said, 'Lee, I'll bet a lot of people are unaware that you were a Marine
In the initial landing at Iwo Jima ...and that during the course of that action
You earned the Navy Cross and were severely wounded.' 'Yeah, yeah... I got shot square in the bottom and they gave me
The Cross for securing a hot spot about halfway up Suribachi.
Bad thing about getting shot up on a mountain is guys getting' shot hauling you down.
But, Johnny, at Iwo , I served under the bravest man I ever knew...
We both got the Cross the same day, but what he did for his Cross
Made mine look cheap in comparison. That dumb guy actually stood up on Red beach
And directed his troops to move forward and get the hell off the beach.
Bullets flying by, with mortar rounds landing everywhere and he stood there
As the main target of gunfire so that he could get his men to safety.
He did this on more than one occasion because his men's safety
Was more important than his own life.
That Sergeant and I have been lifelong friends. When they brought me off Suribachi,
We passed the Sergeant and he lit a smoke and passed it to me,
Lying on my belly on the litter and said, 'Where'd they get you Lee?'
'Well Bob... If you make it home before me, tell Mom to sell the outhouse!'
Johnny, I'm not lying, Sergeant Keeshan was the bravest man I ever knew.
The Sergeant's name is Bob Keeshan. You and the world know him as Captain
Kangaroo.'
If that is a surprising comment on the true character of the man,
He credits his sergeant with an even greater show of bravery.
Dialog from 'The Tonight Show with Johnny Carson': His guest was Lee Marvin.
Johnny said, 'Lee, I'll bet a lot of people are unaware that you were a Marine
In the initial landing at Iwo Jima ...and that during the course of that action
You earned the Navy Cross and were severely wounded.' 'Yeah, yeah... I got shot square in the bottom and they gave me
The Cross for securing a hot spot about halfway up Suribachi.
Bad thing about getting shot up on a mountain is guys getting' shot hauling you down.
But, Johnny, at Iwo , I served under the bravest man I ever knew...
We both got the Cross the same day, but what he did for his Cross
Made mine look cheap in comparison. That dumb guy actually stood up on Red beach
And directed his troops to move forward and get the hell off the beach.
Bullets flying by, with mortar rounds landing everywhere and he stood there
As the main target of gunfire so that he could get his men to safety.
He did this on more than one occasion because his men's safety
Was more important than his own life.
That Sergeant and I have been lifelong friends. When they brought me off Suribachi,
We passed the Sergeant and he lit a smoke and passed it to me,
Lying on my belly on the litter and said, 'Where'd they get you Lee?'
'Well Bob... If you make it home before me, tell Mom to sell the outhouse!'
Johnny, I'm not lying, Sergeant Keeshan was the bravest man I ever knew.
The Sergeant's name is Bob Keeshan. You and the world know him as Captain
Kangaroo.'
On another note, there was this wimpy little man on PBS, gentle and quiet.
Mr. Rogers was another of those you would least suspect of being anything but
What he portrayed to our youth. But Mr. Rogers was a U.S. Navy Seal;
Combat-proven in Vietnam with over twenty-five confirmed kills to his name.
He wore a long-sleeved sweater on TV to cover the many tattoos on his
He was a master in small arms and hand-to-hand combat,
Able to disarm or kill in a heartbeat
After the war Mr. Rogers became an ordained Presbyterian minister and a pacifist.
Vowing to never harm another human and also dedicating the rest of his life
To trying to help lead children on the right path in life. He hid away the tattoos and
his past life and won our hearts with his quiet wit and charm.
America's real heroes don't flaunt what they did; they quietly go about their
day-to-day lives, doing what they do best.
They earned our respect and the freedoms that we all enjoy.
Look around and see if you can find one of those heroes in your midst.
Often, they are the ones you'd least suspect, but would most like to have
on your side if anything ever happened. Take the time to thank anyone that has fought for our freedom.
With encouragement, they could be the next Captain Kangaroo
or Mr. Rogers.
-unknown author
By Robert Murphy - May 2008
As long as commissioned loan officers or mortgage brokers pick and talk to appraisers, there will be appraiser pressure, inflated values and mortgage meltdowns like the one we have just experienced.
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.
By Gary Hector REPORTER ASSOCIATE Antony J. Michels
September 10, 1990
(FORTUNE Magazine) – CALL IT the Case of the Missing Megabillions. We all know by now that taxpayers will have to fork over a sultan's ransom to make good the losses of America's insolvent S&Ls -- $140 billion to $180 billion, according to the latest government estimates, and well over $500 billion, if you add on interest expense and the extra costs a recession might bring. But most of us don't have a clue as to where those dollars went. Enter Bert Ely, who runs an Alexandria, Virginia, consulting firm that specializes in financial institutions. Ely's breakdown of the components of the crisis, illustrated here, offers the most detailed unraveling of this mystery yet. Follow those footprints from this page to the next, and you quickly grasp his main message: The chorus of Congresspersons and commentators who talk as if most of that money were stolen are dead wrong. According to Ely, criminal fraud accounts for only 3% of the $147 billion that he calculates is the net present value of the S&L bailout. Says Ely: ''A lot of what people are calling fraud is a combination of stupidity, bad judgment, and desperation dealing.'' That becomes clearer when you hold a magnifying glass up to two of the most expensive S&L failures: Western Savings of Phoenix and Miami's Centrust Savings. For nearly 60 years Western was owned and run by the Driggs family, a close-knit, civic-minded Mormon clan with no previous history as financial daredevils. But once Congress gave thrifts the green light to make riskier real estate loans in 1982, they revealed a shocking eagerness to advance huge sums for pie-in-the-sky projects. Among their worst decisions was an out-of-state loan to the 25,000-acre Banning-Lewis Ranch in Colorado Springs. That ranch is now the largest single landholding of the U.S. government's Resolution Trust Corp., which took over Western Savings in 1989. By last May the portfolio that the Driggs family had amassed during their five-year binge was so battered by collapsing real estate prices that BankAmerica, which acquired Western's retail network from the RTC, kept only $220 million of its $2 billion in loans. Unloading the rest of those gold-plated office towers and condos, the RTC figures, will cost taxpayers $1.7 billion. Centrust Savings of Miami charted a different route to disaster. Instead of diversifying out of money-losing home mortgages into real estate, David Paul, who took charge of this troubled S&L in 1983, plunged heavily into junk bonds. When that market cratered last year, Paul's $1.3 billion portfolio, consisting largely of deals underwritten by Michael Milken and Drexel Burnham Lambert, was exposed as illiquid and overpriced. Unlike the upright Driggses, this highflying wheeler-dealer treated Centrust like his personal piggy bank. According to the RTC, he used the thrift's money to buy a $7 million yacht and finance his purchase of a home on Miami's exclusive La Gorce Island. Paul also squandered nearly $30 million on an art collection and spent lavishly on silver lobster crackers, Baccarat crystal, and gifts from Tiffany. Scandalous? Of course. But even if federal investigators bring charges against Paul -- and so far he's merely under investigation -- what's at stake is just a small fraction of the estimated $1.7 billion price tag that the RTC puts on Centrust's failure. The big hit comes from Paul's legal, if imprudent, speculation in junk bonds.
As bad as the S&L debacle is, many commentators are making it look even worse than reality. In assessing the tab, most responsible analysts caution against lumping interest costs into the final tally. The $147 billion cited by Ely, for example, is his estimate of the check the government would have to write to close the books on all insolvent thrifts tomorrow. If you assume instead that the Treasury finances that spending by issuing long-term bonds, the bill, stretched out over 40 years, climbs well above $500 billion. To emphasize the waste, some writers compare that amount with the annual cost of, say, Medicaid spending ($41 billion) or AIDS research ($3 billion). But that's like comparing two houses using the list price for one and the price plus mortgage costs for the other. Strap 40 years of interest onto the $300 billion annual defense budget, and nobody, not even Jesse Helms, would vote for another B2 bomber. Just as unfair -- and even more innumerate -- is the oft-heard claim that the S&L losses will exceed the costs of World War II. This comparison makes the kindergarten error of failing to adjust historical numbers for inflation. Sure, the U.S. spent $360 billion between 1941 and 1945 waging World War II. But translate that into 1990 dollars, and it swells to more than $2.5 trillion -- and that's before adding in the enormous interest expenses generated by financing a global war. So by all means, get mad. After all, even without the extra hype, $5 billion in white-collar crime, compounded by billions more in dumb deals, still leaves plenty to feel angry about. But don't forget the even larger role that a host of conflicting or poorly thought out government decisions played. For example, many S&Ls, pursuing their historical role as sources of long-term, fixed-rate mortgages, would never have gotten into trouble had they not been whipsawed by double-digit inflation and the lifting of interest-rate ceilings on deposits in the late 1970s and early 1980s. Ely's analysis is a useful reminder that bad policies, rather than bad men, are what landed us in this mess to begin with.
Tracking $147 billion ... ... and how it grows -- Consultant Bert Ely calculates the government could resolve the S&L mess tomorrow by writing a check for $147 billion. Financing that sum over 40 years at 8.5%, however, adds $500 billion in interest and lifts the total to $647 billion. For a fair comparison with other government expenses, most experts say to ignore interest.
$25 BILLION START back in the late 1970s. When rising inflation sent interest rates skyward, many thrifts -- stuffed with low-interest, 30-year fixed-rate mortgages -- couldn't generate enough income to cover the costs of their deposits. By 1983 these institutions had racked up $25 billion in losses just from that interest-rate mismatch.
$28 BILLION TO help S&Ls find alternative sources of income, Congress in 1982 voted to let them finance riskier real estate projects. Many got carried away. When prices plunged, they lost $28 billion on their loans to empty Texas office towers, Florida condos, and other turkeys.
$14 BILLION A STEEP rise in the thrifts' average operating costs during the 1980s contributed some $14 billion to the eventual cost of the bailout. Spending on silver lobster crackers and European junkets didn't help. But the big-ticket item was investment in unneeded branches.
$14 BILLION TO finance their lending spree, financially shaky S&Ls consistently paid depositors a premium above market rates. Over seven years that extra half to three-quarters of a percentage point added up to $14 billion.
$5 BILLION THE Justice Department has so far charged more than 300 individuals in major S&L cases and convicted 231. But consultant Bert Ely's ballpark estimate is that crooks stole no more than $5 billion.
$6 BILLION LOSSES on non-real estate deals -- $3 billion from junk bonds and an equal amount from business and personal loans -- will boost the cost of the bailout by roughly $6 billion.
$12 BILLION BLAME this $12 billion on government inefficiency. It's an estimate of the losses from mistakes made during S&L sell-offs. In some cases regulators are taking so long to act that a deal's value drops sharply before completion. In others, they are selling rashly and giving private buyers costly -- and unnecessary -- incentives.
$43 BILLION AN insolvent S&L, by definition, owes more than it owns. By keeping hundreds of losers open rather than shutting them down in 1983, regulators ensured that S&Ls would continue to pay depositors interest they didn't have, cloaking their inadequacy behind government-approved accounting gimmicks. The interest: $43 billion.
SOURCE; RESOLUTION TRUST CORP., INC. - THE MOST EXPENSIVE SELL-OFFS
By TA Webster
The role of an appraiser is primarily that of an independent third party. USPAP states clearly that an appraisal may not be based upon a predetermined value. Appraisers are our last line of defense and serve as the ultimate underwriter in a transaction, where (like it or not) the US Government & US Taxpayers are exposed to financial loss.
The big concern in all of this has to do with allowing appraisers to retain their "independent judgement" in performing real estate appraisals.
A large number of licensed and certified real estate appraisers in the United States are seeking your assistance in solving a problem they face on a daily basis. Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure in order to hit or exceed a predetermined value.
This pressure comes in many forms and includes the following: *the withholding of business if one refuses to inflate values, *the withholding of business if one refuses to guarantee a predetermined value, *the withholding of business if one refuses to ignore deficiencies in the property, *refusing to pay for an appraisal that does not give them what they want, *blacklisting honest appraisers in order to use "rubber stamp" appraisers, etc.
Appraisers request that action be taken to hold the lenders responsible for this type of violation and provide for a penalty on any person or business who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgment.
There’s well over 10,000 signatures at http://appraiserspetition.com/
***Some of the comments you'll find there;
"I get emails everyday that say, "I need a value of $X, to order an appraisal".
"We need to boycott all appraisal management agencies taking 1/2 or more of our fees and none of our liability".
"Honest Appraisers get no work. I have had friends in the mortgage business who quit giving me work... didn't hit 'their' value".
"Consumers Wake Up! Appraisal Management Co's are charging up to $550 appraiser's only get half".
"Make lenders assign orders from a 'pool' of appraisers similar to the VA".
"Commissioned transaction participants can not continue to order appraisals or only crooked appraisers will receive work".
"I am tired of losing business and clients because I am honest on my appraisal reports".
"We need protection from blacklisting by AMC'S".
"In the last week we were hung up by 2 different lenders on the same day because we refused to guarantee a certain value".
"Strong-arm tactics are not only illegal and morally bankrupt, but hurt EVERYONE in the long run - witness the sub-prime mess"!
"Banks resell their loans so they do not care if it ends up in default".
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