Occupy Wall Street protesters shouldn’t blame big banks for the mortgage crisis, New York City Mayor Michael Bloomberg said Tuesday– they should blame Congress.
“It was not the banks that created the mortgage crisis,” Bloomberg told an audience gathered for an Association for a Better New York breakfast, Capital New York first reported. “It was plain and simple Congress who forced everybody to go and give mortgages to people who were on the cusp.”
Dear Mayor Bloomberg,
While I agree Congress is to blame, they did have some help. Your comments are extremely simplistic. Here are some details that you may have overlooked:
A change in the business model of banking, mixing credit with equity culture was like added gasoline to a fire. This model, when combined with complex interactions from incentives emanating from macro policies, changes in regulations, taxation, and corporate governance, created the global financial melt down in 2008. And the current melt down. Anyone noticed that the financial industry has been doing well the last three years?
From “The Current Financial Crisis: Causes and Policy Issues”: But the faults in the dam – namely the regulatory system –started from about 2004 to direct the water more forcefully into some very specific areas: mortgage securitization and off-balance sheet activity. The pressure became so great the dam finally broke.
“The banks lobbied Washington so they could write the rules that got us into this crisis.”
With heavy lobbying from the banking industry, Congress repealed the Glass–Steagall Act of 1933 removing the separation that previously existed between investment banks which issued securities, and commercial banks which accepted deposits.
“They then lobbied Washington to get the money to bail them out.”
Many of the members of the board of the U.S Central Bank – the Fed – are with the banks that received the biggest bailouts. The law also repealed Glass–Steagall’s conflict of interest prohibitions “against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank.” Hello Goldman Sachs.
“And now they are lobbying Washington to write the rules so they can get us into the next crisis.” said Elizabeth Warren. The Frank Dodd Bill has nothing in place to stop this from happening again. The bank lobbyists are spending millions, to make sure they can keep on doing this. These are the same banks that we bailed out. Well, we didn’t, our government did. The 99 per cent of Americans that said no were completely overlooked. The “Financial Modernization Act of 1999” – the modern way to rob a bank, the heck with machine guns.
In 1998 the Federal Reserve, behind the scenes, had a hand in this too:
In 1998 Citicorp, a commercial bank holding company, merged with the insurance company Travelers Group to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. This merger was a violation of the Glass–Steagall Act and the Bank Holding Company Act of 1956, the Federal Reserve, headed by Alan Greenspan, gave Citigroup a temporary waiver in September 1998 Less than a year later, The Financial Modernization Act of 1999. Our current Secretary of the Treasury, Timothy Geithner, was the head of the New York Fed in 2003 when all this went down, and he still is protecting his friends’ interests, not ours.
And Hank Paulson?:
The former CEO of Goldman Sachs took good care of Goldman Sachs. Goldman Sachs knew which contracts had subprime junk loans and bought derivative contracts against them, sometimes against what they were selling their clients. They received $12 Billion in taxpayer money to make them whole on their bets. Its pays to have friends in high places. Paulson was instrumental in changing the SEC Rule on debt-to-net-capital ratios broker dealers maintain. Before the change the ratio was 12 to 1. In 2004, this changed for the five broker dealers that qualified – Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley – to 30 to 1, and in the case of Merrill Lynch 40 to 1. When Bear Stearns went down, one of their funds had been refinanced so many times they were leveraged 100 to 1. That means they had $1 for every $100 they (ultimately U.S. Taxpayers) borrowed. Right now if you or I want to borrow on margin, if we have $25,000 in our account, we can borrow $100,000. at various rates from 7.57 percent for $25,000-$49,000, and up to $100,000 -$499,999 6.75 percent, above $500,000 it’s only 3.75. (info from Fidelity Investments website) Reality check, the interest rate for bank borrowing is 0.25 percent. That’s quite a deal, thank you Fed!
Back to 2004 – 1) Interest rates are 1 percent for banks and investment banks, 2) the SEC has approved the change to double and triple the debt to equity ratio, 3) mortgage securitization began to explode with the very attractive loans, 4) Banks and Mortgage Companies are writing loans, deciding due diligence – qualifying people for a mortgage – was no longer necessary once the Bush administration said Freddie and Fannie would guarantee those mortgages. Off to the races! The liquidity dam was overflowing.
Let’s not forget the ratings agencies. Triple AAA for subprime junk:
Rating agencies are in business to make money. They earn their fees providing a formal assessment of credit risk, thus giving a rating. They face constant pressure to earn fees for rating deals as for profit companies. The ratings agencies fraudulently gave everything triple A rating, thus ensuring all the pension plans and state governments would buy the crap. That is because in order for pension plans to buy products, they must have a triple A rating.
Have I overlooked any other legal options these crooks had? Let me know.
How’s that no regulation, business as usual working for you America? It’s time for us to Occupy Congress.
We are the change we want – let’s be our own lobbyists, and vote with our feet.