Reform of Financial Regulations
When I bought my first house almost 40 years ago, getting a mortgage loan was a very serious matter. Plenty of people were turned down. It was like going before a Judge. The bankers knew that they were lending their own money, and that if you defaulted on the loan as a minimum it would be a real pain in the ass for them, and that in the worst case scenario the bank could actually lose money. In the current street lingo they had what is called “skin in the game.” The same was true when you applied for a credit card.
Over the years various greedy con artists realized that they could bundle lots of home mortgages and/or credit card debt, call these securities, and sell them off to investors. It goes without saying that the banks and consultants both earned big fees in these transactions. It worked especially well when the ratings companies like Moody's and Standard & Poor's gave their blessings and said that the securities were safe for the risk adverse investor to buy. If the home buyer eventually defaulted, all of the risk had been shifted to the investors who purchased the loans, so the lending standards by the mortgage bankers went down. Way, way extremely far down.
Eventually at the peak of the bubble borrowers could quickly get a $400,000 mortgage loan and buy a brand new house with a zero down payment loan and do so without providing any proof of income or even claiming that they had a job or some source of income. Of course lots of these borrowers couldn’t pay back their loans. The banks knew full well that the income many of these borrowers were earning was terribly insufficient to pay their normal living expenses and also make the payments on their mortgage loan. The lenders really did know this full well. Really. It was a clear cut case of dishonesty which should openly be called fraud or a con game.
When this change to securitization of mortgage and credit card debt took place the bankers started to look less like rock solid, stable members of the community elite and more like used car salesmen. Or maybe unrepentant ex-cons.
With the bubble bursting the American people gradually began to see how crazy the economic policies of the Republicans had been. Constantly lower taxes on the wealthy, and spend spend spend on warfare and wasteful military technology that in some cases even the military didn’t want. All the while the Republicans were disingenuously accusing the Democrats of spending too freely. Some of the very worst budget deficits in the nation’s history took place while Republicans like Reagan and Bush were at the helm.
So the American voters decided to change course and elect as President the Senator who had the very most liberal/left-wing voting record of any of U.S. Senator. Even though he had a strange name, his middle name was Hussein, he smoked cigarettes in the closet, and he was half white-half black he easily got elected to the unenviable job of President of the United States.
And then almost magically within just a few months, Mr. Obama began behaving more and more conservatively. Even though the Democrats had a solid majority in the House of Representatives and a thin majority in the Senate, he did not go for the bold solutions which were necessary and appropriate. It became clear that he did not have the balls for a fight. His penchant for compromise and reaching across the aisle became a sad, sick joke.
In the early 1600’s when Galileo Galilei came out of the closet and stated publicly that the earth revolved around the sun rather than the egotistical view that the entire universe revolved around the Earth, this was a controversial and extremely dangerous thing to do. The rich and powerful members of the community considered this idea to be enormously threatening. People’s reputations and lives were ruined by standing up for controversial ideas like this.
The analogy goes this way: There is no middle ground here, no possibility of compromise. One side is 100% wrong and the other view is 100% right. One could make a similar analogy when discussing the controversial subject of ending slavery. It would have been wrong to try and find a middle ground where slavery was legal and ethically appropriate in certain well defined sets of circumstances. No, just like with Galileo, the concept of slavery had to be opposed in all cases. Period. No compromise appropriate.
So now the Obama administration is proposing some new and badly needed rules and regulations for the country’s financial players. This comes after years and years of the pro-business, pro-greed dismantling of vital regulations which the right wingers worshiped and called Deregulation. Of course all these greed driven bankers, MBAs, and Wall Street types are now screaming like stuck pigs. We all would like to live in a world where laws and rules applied to others but not to us.
Obama’s team should have come out and openly admitted that securitization of mortgage and credit card debt encourages excessive risk taking, is bad for the stability of the economy, and that it has to cease entirely. But of course this would have been mildly controversial and might have resulted in a bit of a conflict, so the Great Compromiser Obama (read weak and sadly almost pathetic) made this proposal: Banks could only securitize and sell off 95% of their loans.
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They could securitize and sell off 95% of their loans, which contained 100% of their risky or shaky loans, but now after these new “reforms” they would be required to keep 5% of the very most rock solid loans. Smoke and mirrors, nothing more. It reminds me of the illusions by the Wizard of Oz.
The Obama administration is smart and politically savvy. They know that before any proposal is passed and becomes a law it will normally get watered down quite a bit.
The Obama approach is absurd. They should have started out by taking the position that all securitization and selling off of loans would be flatly prohibited, with full knowledge going in to the discussions that during the process of negotiation they would probably have to back off somewhat to something like: Banks can only sell off 50% of the loans they make. But to initially go into the negotiations demanding that banks only keep 5% “skin in the game” is indicative of the weakness and the sad need for approval by this administration. It is so incredibly distressing.
And the same thing is happening with universal single payer health care. If anything at all passes, it will only be teeny, tiny so called reform. It certainly won’t make sure that ALL Americans have access to the health care system, even the poor or sick Americans. Basically the Obama team seems to have given up even before the real fighting begins.
Barack we love you. Come on, Get Some Balls Man!!!
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