by Joe Shea
American Reporter Correspondent
March 23, 2008
WHEN THE BANKS ROB THE FED
BRADENTON, March 23, 2008 -- The countless billions of bad mortgage debt that used to be the responsibility of giant Wall Street investment banks is becoming your responsibility as a taxpayer, and there's damn little to be done about it.
Many people only vaguely and halfheartedly understood what was happening when the Federal Reserve agreed to open its lending window to not just banks, as had been the case since the Great Depression (1929-1939), but to the non-public private investment banks that had bought a lot of bad bank debt and structured it in a multiplicity of complex new investments they sold to other banks.
Back in 2003, when my wife and I were forced to leave my home of 23 years due to the sale of the building we lived in, we went to a loan broker to see what kind of loan we could qualify for if we chose to buy a house. We were offered $250,000 if we didn't plan to document our income, and were eligible for much more if we did. But neither my wife nor I had a job at the time, and the prospect of paying off that mortgage - especially at the high adjustable rates the loan would go to in two years - put me off. I'm always serious about paying my bills, even at those times I can't, and I didn't want to be saddled with a $1,500 payment every month.
Nonetheless, we looked at a couple of places. One was on steep hill off Riverside Drive near the 5 Freeway. There were some framing remnants standing, and a very bad smell - like someone had been murdered there, I thought. There was no way to reach the house except by a treacherous, narrow stone staircase that wound past a wildly yowling pit bull, That was $189,000.
Another was fronted on an alley of old wooden garages that were graffitied from top to bottom with the urgencies of the 18th Street Gang, Mara Salvatrucha and other neighborhood bad guys. That house was 450 square feet, and 48 years old. The flooring had rotted and the foundation was cracked. It was molding and filthy, and the neighborhood was very dangerous. The owner wanted $250,000.
The last we looked at was a decent-sized ranch home in West Covina at the end of an iffy street. Gang members were gathered in the garage when we got there, and we could see behind them the damage to walls and floors that probaboly extended into the house. A river was just down the street, and that spooked my wife. It was $270,000.
Instead, we moved to a bright condo in the middle of a golf course in Florida, and when my parents died in 2006 we bought it for $148,000 from the estate. No mortgage, but we struggle with the homeowner's association dues and the taxes, taking them one month at a time. There are 8,000 or so like it on the market here but the prices haven't yet fallen to what we paid.
Since last Monday, taxpayers have bought the first three houses, at least figuratively. The Fed is accepting tens of billions of dollars of mortgage debt on properties like these and handing over good cash money in return to the banks and investment houses that originated or bought this bad debt - bad, they say, because people can't afford to pay them off at the high adjustable rates and have walked away from them.
That happened at least 118 times in our small town of Bradenton, a Florida retirement community of 50,000 souls on the Gulf Coast an hour south of Tampa, last week; 118 homes went into foreclosure, and 118 families, investors, and inheritors lost homes, or started the process of losing them. They have been doing so at that rate for a while now; in January, there were 104 foreclosures a week, on average.
The Fed, however, gave the banks and investment houses loans with those mortgages as collateral at extremely low rates, and are justifying that by saying mortgages are AAA-rated by the handful of bond-raters and bond insurers, who are simultaneously accused of collusion in America's mortgage debacle and are in some danger of failing themselves.
Just to refresh your memory, it takes 1,000 thousand-dollar bills to make a million-dollar bill, and it takes a thousand million-dollar bills to make a billion-dollar bill, and a thousand billion-dollar bills to make a trillion-dollar bill. The Fed is prepared to loan at least $200 billion to 30 different banks and investment houses, and will probably loan a great deal more - perhaps a trillion dollars more - if taxpayers let the Fed keep its "window" open that long.
Had the Fed chosen, it could have loaned $1,000 to 200 million Americans. It would have roughly the same chance of getting its money back. Instead, it's giving each couple that pays their taxes a check for $1,200. It's like the Republicans always say: Give a man a fish, and he'll eat once; teach him to fish and he'll always eat. In the case of banks they've reworded it slightly: Give a man and woman $1,200 to survive and they'll go away happy; loan the banks billions of dollars on worthless paper debt and they'll keep coming back for more.
When you read next week of "new credit woes" and that sort of thing, you are listening to the major media, which one way or another is often owned by banks and investment houses that undewrite all their acquisitions and capital spending, making the case for each successive one of these 30-odd banks to make their way, hat in hand, to the Federal Reserve lending window and take out their little $6 or $7 billion pittance. They want to rebuild our faith in them, only with our money.
In their hands the bankers will hold a pile of documents, each with nice gold seals and county assessor stamps and legal advisory letters, that represent that rotting house on the alley in Hollywood and that stinking mess on Riverside Drive and that gangster hangout in West Covina. And the Fed will reach out and take them, look them over, and then hand over billions of dollars in taxpayer money to the beggars at the window. Once out the door, they'll do a happy little dance and go buy some of their stock, now that it's sure to rise.
Unfortunately, perhaps 95 percent of Americans are too apathetic, bored, lazy, ignorant, disheartened, depressed, worried about other things or just plain stupid to take note. I am in one of those categories, but I haven't had the good sense to give up yet.
Joe Shea is Editor-in-Chief of The American Reporter. He won the 1997 Supreme Court case Shea v Reno that keeps the government from censoring the Internet.