60 Minutes, as usual, had a very nearly excellent program last week on the economic collapse, and they were all upset because no one has been arrested; no particular person appears to be under investigation. They have a good reason to be upset, but they seemed, at least in this report (and in several previous programs), to be clueless as to why.
What happened at the end of 2008 changed history and the direction of the United States. Treasury Secretary Hank Paulson goes to President George Bush and tells him, “The banks in the United States are about to collapse. We need TARP. Let me have nearly a trillion dollars, and I can take care of this.”
Then 10 or so huge banking conglomerates are called in and they are told that they are going to take a huge, temporary loan, and no one is to talk much about it. If a bank is in good shape, they take the money; if a bank is ready to collapse, they take the money. The explanation, which seemed reasonable, was, we do not want the public to know which banks are solvent and which ones are not. The problem was, so many of these banking conglomerates had a huge amount of bad housing investments in their portfolios.
At first, Congress said no. Then our economy very nearly collapsed. The Dow Jones dropped 778 points on at the end of September, 2008, right after Congress refused to pass the TARP legislation. This was the greatest net loss in Stock Market history, when $1.2 trillion of wealth was lost in one day.
TARP was immediately passed; money was left on the table for the next administration, and, eventually, hundreds of institutions were bailed out. As a result, the momentum for Republican candidates McCain and Palin stopped and they began to lose ground. The Democrats capitalized on this, blaming the Republicans, and Obama blamed George Bush. and the Democrats took over the Presidency, with strong majorities in the Senate and the House.
If you will recall the Obama campaign, you heard President Bush and his economic policies being blamed, over and over again, for the market crash. TARP was not strongly questioned, but it was clearly Bush’s fault, at least, according to Obama and the media. Democrats successfully blamed George Bush, the banks and Wall Street, and said it was all their fault for the market crash.
So, here it is, 3 years later, after 2 years of super-majorities by Democrats in Congress, and, for some reason, these evil bankers and evil Wall Street types are not being pursued for their criminal acts. In fact, it turns out that Wall Street is giving far more money to Democrats than to Republicans. Furthermore, it was Wall Street that got bailed out, both under Bush and under Obama. Those same evil bankers and financial types that the media told us were at fault.
So, what gives? Why is there this symbiotic relationship between the current White House and these same financial institutions that they blamed for the crisis?
That is what 60 Minutes asks. Who is going to be investigated? Who is going to be arrested? Department of Justice seemed to have no substantive answers for them, apart from, “The wheels of justice grind slowly.” Furthermore, 60 Minutes seemed to have no real clue either. There were no questions about the key connection here: the relationship between the government, Wall Street, credit services and the large banks. This is the unholy alliance. I’m not talking about Democrats versus Republicans here; I am talking about government and the many financial institutions which were intimately involved in this crisis.
What has been happening as of late? It turns out that many members of Congress were making money on the stock market, no matter that we are in a down market or an up market (and this has been going on for a long time). Senators, in particular, were getting great returns on their investments—even greater than smart fund managers. Somehow, these Senators are so brilliant that, besides handling all this government stuff, they are brilliant investors.
Although I have not studied this, I can just about guarantee you that the investments that various members of Congress made with respect to housing and the housing market was inspired. Just as if they could see the future. It is as though they knew when the markets were going to tank.
Information is coming out in drips and drabs. No investigating committee wants to turn over too many stones. After all, what Wall Street banker, who has given $1000’s or has bundled tens of thousands of dollars for the current president wants to take the fall for this. Do you think they will stay quiet? Do you think one of them is going to be arrested and then he says, “Yep, I did it all. It was all my idea.” No, if he is pushed against the wall, he is going to starting naming government names and government legislation and, more importantly, the names of the government regulation who told them, “Start lending money for housing to specific groups of people and we will buy these loans from you.” You simply cannot have dozens of institutions suddenly doing the exact same thing (making bad loans) without some guidance and help from the government.
Only recently, it has come out that credit agencies would do rapid re-scores on people with bad credit (one of the ignored stories of this month). The buyer or buyers would walk in to get a loan after finding a house; they explain with a short letter why this, that, and the other thing is on their credit record, and suddenly, within 1 hour, their credit score goes from 500 to 700. Suddenly, they are qualified to buy that house; they can now get the loan for it. They have the background and credit score necessary to qualify. Although this is well-known in the banking industry, this does not seem to be of any interest to the media.
From personal experience, I know that loan officers and underwriters did a horrible job when it comes to checking the backgrounds of potential home buyers. I had two instances where I was called to tell how my tenants were doing; did they pay on time; and, in each case, these were problem tenants. So as not to ruin their chances to get a house, I said, “Call me back in a week” so that I could work things out with the tenant. These people doing the verification never called back a second time. They verified the ability of a person to pay on their housing loan without getting a clear appraisal from me, their landlord.
And so, millions of people purchased homes that they could not afford; banks loaned money on very bad loans; and the government continued to buy or guarantee these loans. Also, in all of this, the government went from owning and controlling 50% of American mortgages to owning and controlling and guaranteeing 90% of the mortgages in the United States. During all of this time, these rapid re-scores would last just long enough for the loan to close and fund; and the government continued to buy or guarantee these bad loans. At the same time, people who worked for FNMA and FHLMC made millions–particularly the executives.
In other words, the government was intimately involved in this mortgage mess, as I have pointed out in many articles in the past. In fact, those in the government were criminally involved. If there was no government involvement, there would have been no housing bubble and subsequent crash.
What we are talking about is hundreds and possibly thousands of people, both inside and outside of government, who pulled this off. They may have had some honorable intentions at the beginning, but then they began to make so much money and the economy went like gangbusters; and then there was that crash. And still, some Senators and Congressmen seemed to have this uncanny ability to know how to time their own investments as to make money during one of the greatest crashes to occur in our lifetime.
Let me make it clear—if there are more than 10 Wall Street types and mortgage company CEO’s that are arrested, then, there is going to be revelations of many ties to our government, government officials, and government regulators to a point that our heads will spin. And then there will be thousands of arrests, most of them coming from inside the government.
Therefore don’t expect any arrests; not in the near future. Expect the official explanation to be, “While what these bankers and mortgage officers was immoral, it was not illegal; and so, we have no way that we can prosecute them.” Because, to bring charges against these private citizens is to eventually bring charges against many congressmen, Senators and government regulators, from both parties. Do you think our government is going to allow that to happen?