Thursday, December 20, 2007

Regulators, Mount Up

As the mortgage crisis continues to worsen and the big R word (recession) is showing up more and more in stories about the economy, it once again illustrates the true intentions of corporations and the Congressional minions who do their bidding. For the past three decades the conservatives and the corporations have been continually assaulting the regulatory arm of the Federal Government. Whether it is the inspectors that safeguard our food supply, our water, or our medicines all have been under attack. Although it is never presented in truth, but always in code, the fact remains that the goal has been to weaken our ability to regulate their business practices.

The code is couched in language like “big government”, free market, and self-regulation. The results of course have always been the same; pollution, tainted food and medicines, and loss of consumer choice. Because they have been so good at their marketing practices anyone who has the audacity to request regulation is immediately labeled a socialist or obstructionist. Every time deregulation has come to an industry the consumers have suffered, whether it was communications, travel, or banking. Deregulation requires us to rely upon the greediest to recognize the common good and to do it, instead of maximizing their gains. Why anyone would think that this would work is beyond me.

The scary part is that even when misdeeds are reported by the few regulators we have, they often times go unheeded. Whether it is Medicare fraud, war profiteering, or gas price gouging the response is often times the same; inaction on the part of superiors or a cover-up. How many stories have we read of government “whistleblowers” who were retaliated against by managers or supervisors, hell we even had to create a law making retaliation illegal? The latest in the long saga of ignored warnings is the mortgage crisis, it appears that almost a decade ago there were warning signs and alerts that were being ignored. This included a direct warning to Alan Greenspan, our economic guru and market manipulator. Although Mr. Greenspan has always claimed political neutrality, many of his policies were timed to benefit the current and past Republican administrations.

In order to keep the “recovery” on track for young Mr. Bush, Mr. Greenspan ignored warnings from a Federal Reserve governor and an advocacy group to investigate the growing lending crisis. Lenders were initiating risky loans as early as 2001 and were generating mortgages that would balloon into unmanageable payments for the borrowers. I remember when I first heard of the balloon mortgages, my first reaction was disbelief and slowly over time turned into anger. The concept to me seemed as solvent as the “junk bond” fiasco that took place two decades earlier, both were predicated on greed and the lack of financial knowledge of the consumers. Just because someone can get credit doesn’t mean they understand credit.

WASHINGTON — Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.

Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.

But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.[1]

Because Mr. Greenspan was trying to create the illusion of prosperity to buoy the fortunes of President Bush, he refused to rein in a lending market that had gone crazy. In what is being called the pursuit of innovation and Mr. Bush’s “ownership society”, lenders were allowed to generate loans to low-income or sub-prime borrowers. While in theory this was an excellent goal, because it represented a market that had longed been ignored and discriminated against. However, when theory became practical application the sharks began to infest the waters. These consumers who were not credit savvy were placed into loans that promised initially low interest rates, but were back ended with astronomical rates that based on their incomes the consumers could not afford. Also included in many of these loans were predatory lending fees and clauses that bound the consumers to these high interest loans for years.

Customarily, mortgaged loans are generated by one institution only to be sold to another lender after about a year. Many of these loans were created with high buy-out clauses that prevented the loans from being sold or allowing the consumer to shop the loan for a lower interest rate. The good news is you finally get a home; the bad news is in three years you won’t be able to afford it. This is the results of the Republicans privatization of HUD. Rather than having the government regulate and assist with these new homeowners, the conservatives believe that the consumers are best served by private industry. The same private industry that ravaged the communications, healthcare, and airline industries was entrusted with the lives and homes of unwary consumers. Now, that shouldn’t have set off any red lights or alarms.

“Why are the most risky loan products sold to the least sophisticated borrowers?” Mr. Gramlich asked in a speech he prepared last August for the Fed’s symposium in Jackson Hole, Wyo. “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”[2]

The problem I have with corporate America and their Congressional minions is not capitalism, everyone is entitled to make a buck; no it is their greed. With these guys there is never enough money, power, or stuff. The truth of the matter is there was no Bush recovery; it was all smoke and mirrors orchestrated by Greenspan, the markets, and the corporations. This explains why even with a “so-called” recovery middle and poor Americans were still struggling and there was no consumer confidence. I just hope the next administration will have the courage of its convictions and will rein in the greed that has been allowed to run rampant for nearly a decade.

[1] http://www.nytimes.com/2007/12/18/business/18subprime.html
[2] Ibid.

1 comment:

Mishi said...

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