Today's World: Mortgage Scams: Why So Many People Went Under

Wednesday, October 20, 2010

Mortgage Scams: Why So Many People Went Under

Dick Parsons,the chairman of Citigroup,primarily blamed borrowers for buying houses or taking out home-equity loans they couldn't afford that lead to the burst in the housing market.He didn't mention the financial innovations all designed to maximize fees on the backs of those same consumers.Subprime mortgages were given to low or unstable income individuals who were less qualified than conventional ones.The 100% nonrecourse mortgage(no down payment),teaser rate mortgage(temporary low rates that exploded after a few years), and liar loans(falsified income by brokers) all contributed to a stampede of new scams to get consumers to buy their products.Many of these consumers trusted the advice of brokers and lenders who told them that the price value of their houses would increase yearly and could afford monthly payments.Banks exploited the poor and uneducated consumers and didn't care if they could pay the loans back because they were repackaging them as securities to sell to investors here and abroad. Home owners were also encouraged to refinance their loans to get cash to buy other consumer products.Some did so thirteen times in six years with no documentation of income.Each refinance brought considerable fees.

What happened to traditional banking?After the great depression,regulation ensured that the banks didn't take excessive risks.Banks loaned in the community they did business in and require a 20% down payment.If the loan couldn't be repayed, the bank was responsible and took the asset into its management.With FDIC and a rush to deregulate, incentives and opportunities for bad behavior multiplied. The repeal of the Glass-Steagall Act in 1999,integrated investment and commercial banking and set the stage for exploitation.The banks also got so big they knew the government would bail them out for their bad innovations and behavior.

The innovative products were designed to manage and take away risk as much as possible and to generate fees.Alan Greenspan in 2004 favored adjustable rate mortgages due to his lowering the interest rate to 1% in 2003.Many individuals bought into his advice only to see the rate rise to 5.25 by 2006.Unfortunately,many took out mortgages that overwhelmed them when the payments increased dramatically.Many mortgage brokers received kickbacks from the lenders and became part of the predatory lending system.The brokers got the biggest rewards for steering borrowers into the riskiest mortgages(adjustable-rate loans with prepayment penalties).Innovation responds to incentives and those incentives created products that generated fees that didn't manage risks properly.

Securitization diversified and shared the risks.Banks bundled numerous mortgages and sold them to investors (many to international investors)and pension funds.The credit rating agencies were part of the scam and received their fees to look the other way.When the bubble burst and unemployment rose,the banks knew they would be protected but the unfortunate citizens who believed the advice of the financial experts were left on the street looking for shelter.

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Wisconsin Public Unions

As we witness the members of the public unions of Wisconsin and their supporters in the streets,one must remember their fight for democracy in the workplace helps all Americans(90% non-union workers) who work for smiling,insensitive dictatorships that would cast workers out into the cold for voicing their opinions and standing up to injustice.The corporate,conservative mindset hates real democracy because it gives ownership to the powerless and respect to the oppressed. Our fathers and mothers had ownership when one third of the American workforce was unionized.Work councils(in fifty percent of Germany's companies)provide equality and democracy between management and labor while making all the decisions for a productive,profitable company.Germany is one of the leading exporters of the world.This new form of capitalism must be replicated on our shores.

William Goonan

From "The Wrecking Crew" by Thomas Frank

The longing for permanent victory over liberlism is not unique to the Anglo-Saxon world.In country after country,business elites have come up with ingenious ways to limit the public's political choices.One of the most effective of these has been massive public debt.Milton Friedman,dean of free-market economists, stated that deficits were a way to smash a liberal state that voters could not be persuaded to part with otherwise.The famous "supply-side" theory that states less tax will unleash economic growth has been used by Republicans to increase the deficit.Reagan and Bush#1 increased the national debt from 914 billion to 4 trillion by 1992.Geroge W Bush,with tax cuts, unpaid wars and bank bailouts,increased the deficit by another 6 billion.Reducing the public's faith in government is the final goal of the Republicans.

Corporate Watch Blog

One of the most glaring examples of this continues to be the ability of corporations to cheat the public out of tens of billions of dollars a year by using offshore tax havens. Indeed, it's estimated that companies and wealthy individuals funneling money through offshore tax havens are evading around $100 billion a year in taxes -- leaving the rest of us to pick up the tab. And with cash-strapped states all across the country cutting vital services to the bone, it's not like we don't need the money

Democratic Socialist USA Statement

WE OPPOSE TOTALITARIANISM IN ITS SECULAR AND RELIGIOUS FORMS. Communism is a horrible, destructive parody of socialism. "Communism" is the most dangerous enemy of democracy and free Labor in the world. We rejoice in its collapse of the Soviet Union with formerly enslaved nations now joining the society of democracy. SD,USA proudly opposes Communist totalitarianism and opposes religious extremism arising in many religious traditions, especially in the Islamic world.
WE AFFIRM THAT IN THE 21ST CENTURY THE SOCIAL DEMOCRATIC/DEMOCRATIC SOCIALIST MOVEMENT SHALL ALSO BE A ENVIRONMENTALIST MOVEMENT DEDICATED TO PRESERVING THE FRAGILE ECOLOGY OF THIS PLANET. We commit ourselves to working with labor and environmental coalitions like the Blue Green Alliance, begun by the unionists and environmentalists to preserve our planet and create new jobs in renewable energy and mass transit.

Today's World

Wednesday, October 20, 2010

Mortgage Scams: Why So Many People Went Under

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