Thread: Hang On To Your Wallets The Government Is About To Rescue us

Hang On To Your Wallets! The Government Is About To Rescue Us
By Dave Lindorff
9-20-8

When the financial markets started coming undone earlier this week, the Treasury Secretary and the Federal Reserve stepped in, and with $85 billion of our money (actually our children's money, since they borrowed it from China and Saudi Arabia), bought foundering AIG, the world's largest insurance company, and assumed its colossal pile of crap debt.

That didn't help, and the stock market crashed further, falling to levels not seen in three years. Banks, meanwhile, stopped lending, figuring to just hold onto their money and try to weather the crash. The US Treasury and the Fed stepped in again, this time pumping nearly $300 billion more of our money into foreign money markets, and getting European and other governments to do the same in an effort to get the credit markets open again and to stop the stock market swoon. That was on top of some $700 billion already spent on bailouts.

It didn't work. Thursday, the markets continued to fall, well into the afternoon, and it looked like another seriously down day. But then Treasury Secretary Henry Paulson came up with a new idea. He said he and the Bush administration were considering setting up a new agency to assume all the bad debt of the banking sector--meaning all those bad loans they made, and that they lured unsuspecting consumers into taking out, by way of deceptive marketing techniques and outright fraud.

Note that we're talking about perhaps half a trillion dollars here--of our money again. And remember, much or even most of this money will never get repaid, and we're talking about money that could have funded reduced class sizes in every school in America, a national healthcare system, a crash R&D program into non-carbon energy and (not or) a strengthened Social Security and Medicare program.

The drones in the Democratic Party leadership in Congress immediately jumped on the bandwagon, with House Speaker Nancy Pelosi (D-CA) urging her charges to act quickly to get some kind of a bill out there to facilitate the bail-out, which could cost anywhere from $600 billion to $1 trillion, but most estimates.

The thing to remember here is that this is not a rescue of the little guy (though the Democrats say their rescue plan, when it appears, will include some kind of relief for people unable to pay their mortgages). Don't hold your breath. Odds are those people facing foreclosure will still be unable to pay their mortgages, and besides, there's no way there will be relief for the majority of homeowners who aren't missing their mortgage payments, but who are struggling mightily to meet them each month.

Primarily, who gets helped by this enforced taxpayer largesse are the fat cats who own all the stock in these financial institutions, all the executives who pay themselves outsize salaries each year for their lousy management records, all these hotshot traders who make the deals that later turn sour, long after they've run off to another job taking their bonuses with them.

We ordinary people, who live from check to check, will feel the pain of this "rescue" in the form of higher taxes in coming years, and in a devalued dollar--because you can bet that all that money they're printing, and all that added debt they're piling on to the mountain of debt already out there is going to make the rest of the world pretty queasy about holding onto dollar-denominated debt, or about buying any more of it.

When you hear a banker say he's going to help you, it pays to hang onto your wallet. When you hear a politician say he's going to help you, hang onto your wallet. If they're both saying the same thing, and especially if one of them is the head of the Federal Reserve Bank, then you better really hang on tight.

Not that that will do any good.

The real answer to this crisis is, firstly, a massive dose of trust-busting, so that no bank or investment bank or insurance company is so big that its failure becomes a threat to the financial system, and thus the government has to rescue it with taxpayer money, and secondly, a return to the era of Glass-Steagall, when it was illegal for banks to also be in the investment banking busiiness.

All the talk of "efficiencies" and of "better service to the customer" that has been endlessly parroted to justify mergers like Citicorp and Travelers, or JP Morgan and Chase Bank, or now Bank of America and Merrill Lynch is fraudulent. Just to give an example, my bank, once known as Willow Grove Bank, a small family-owned institution, was bought by another bank and became Willow Financial. Almost immediately the staffing levels went down. Recently, the combined entity, which ran into trouble, was bought by another institution, Harleyville Bank. Now there are half as many tellers most of the time. As one teller confided, "Every time we get bought, they lay people off."

Of course they do. That's what mergers always do. To recoup the costs of the merger, management cuts back on service and employment.

The truth is, for all the talk about the efficiencies of bigness, getting a mortgage today isn't any cheaper than it was in the 1950s, when there wasn't even any such thing as a national bank that would be "too big to fail."

The real reason we have mega financial institutions is that mega financial institutions pay mega bucks to managers and make mega donations to the campaign coffers of politicians. They also get to put some of those mega-buck managers into key advisory positions in each administration, Republican and Democrat, to ensure that government polices allow them to get even bigger and even richer--and to ensure that when they screw it up, they get rescued at the taxpayers' expense.

DAVE LINDORFF is a Philadelphia-based journalist and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006 and now available in paperback edition). His work is available at www.thiscantbehappening.net

http://www.counterpunch.org/lindorff09192008.html

12th bank failure of the year announced

Regulators close down Ameribank Inc., a West Virginia-based-bank with total assets of $115 million.

By Catherine Clifford, CNNMoney.com staff writer
Last Updated: September 19, 2008: 8:48 PM EDT

NEW YORK (CNNMoney.com) -- Ameribank Inc. was shut down on Friday by the Office of the Thrift Supervision, making it the 12th bank this year to go under.

The Northfork, West Virginia bank had total assets of $115 million and total deposits of $102 million, according to a statement on the Federal Deposit Insurance Corporation Web site.

The FDIC was named receiver and announced that it entered into purchase and assumption agreements with Pioneer Community Bank, Inc., Iaeger, West Virginia, and the Citizens Savings Bank, Martins Ferry, Ohio, to take over all of Ameribank's deposits.

Ameribank has five branches located in West Virginia and three branches located in Ohio. Branches in West Virginia will reopen on Monday and Ohio branches will reopen on Saturday.

All customer accounts were automatically transferred to the two new banks and the full amount of their deposits will automatically be insured, the FDIC said.

Customers of the banks can still access their money over the weekend by writing checks or using ATM or debit cards, according to the statement by the FDIC.
A year of bank failures

This year 12 banks have been forced to close their doors. In July IndyMac was closed down marking the largest collapse of an FDIC-insured institution since 1984. The Pasadena, Calif.-based bank failed because it backed risky home loans. With the special Alt-A home loan that IndyMac offered, a home buyer had to show little evidence of income and assets.

When IndyMac was shut down, it had assets of $32 billion and deposits of $19 billion. While the FDIC protected most of IndyMac customer's assets, some customers lost some of their deposits.

The FDIC insures the assets held by the 8,451 institutions with a total of $13.4 trillion.

http://money.cnn.com/2008/09/19/news/co ... 2008091920

Be sure to watch the movie IOUSA

It really explains our current financial gloom and doom.

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http://www.youtube.com/user/GaGirlie777

Confessions of a sub-prime mortgage baron

The former loan company boss now sees himself as little better than a mid-rank drug dealer

Andrew Clark in Dallas
The Guardian,
Friday September 19 2008

As a sub-prime mortgage lender, Richard Bitner has not done too badly. He lives in a huge mock Tudor house in a wooded suburb on the edge of Dallas, complete with miniature turrets, an oversize fireplace and wood-panelling. But he is a little bit, shall we say, tortured.

Bitner was co-founder and president of Kellner Mortgage Investments, a firm which specialised in providing high-risk loans of the sort that triggered America's mortgage meltdown and credit crunch. Now out of the game, he compares himself to a drug dealer, acknowledging that his trade has achieved pariah status in the public eye.

"I almost look at the mortgage industry kind of like the drug trade. Wall Street and the investment banks are the Bolivian drug lords," he says. "You look at this and you go: What were we doing? Who doesn't want the feeling of euphoria? Who doesn't like to get money?"

He continues: "Wall Street, the drug lords, were creating this product. Lenders and brokers are the street dealers who were largely making it available based on a consumer desire; a want for it."

A trim, bearded 41-year-old with a small medallion on a chain around his neck, Bitner has lifted the lid on the mortgage industry's excesses in a book called Confessions of a Subprime Lender which is packed with tales of crooked brokers, deceitful customers, avaricious Wall Street banks and all too obliging credit rating agencies. Thanks to appearances on television discussion shows across the US, he is becoming the human face of a loathed industry.

He reckons his firm, which peaked with 65 employees, put him at the level of a mid-ranking narcotics fiend: "I'm probably the guy who is in the city distributing it to all the people on the corners, and it is ultimately going to the consumer - the wholesaler."

Across the US, an estimated 2.5 million people are in danger of losing their homes to foreclosure this year as a result of the sub-prime mortgage crisis. Bitner's description of day-to-day business at Kellner is an eye-watering glimpse of the industry's slide into anarchy.

His company was in effect a middle man, taking applications from independent brokers and providing them with loans funded by big finance houses, then selling the finished articles on to Wall Street for securitisation.

Bitner bankrolled Kellner's creation by persuading his parents to mortgage their house in 2000 and he stayed in the game for five years, watching the types of loans on offer from financial institutions get steadily riskier.

Dishonesty became endemic in loan applications. By the end, Bitner reckons that 70% of submissions to the company from brokers were deceptive. Properties, supposedly objectively appraised, were spectacularly overvalued. He estimates that half of loans were on homes over-egged by up to 10%, a quarter had prices exaggerated by 11% to 20% and the rest were "so overvalued they defied all logic".

Tricks

"The industry lost its mind," says Bitner. "It went from borderline stupid to downright insane." The notion of "acceptable risk" simply went out of the window: "I watched the margins compress in the industry and I realised no one was providing for the risks."

In his book, Bitner recounts a seemingly endless list of tricks used by brokers to push dubious loans. Many simply withheld information, such as the fact that a homebuyer was getting an additional loan to pay for a deposit or that a couple, buying on the basis of joint income, were actually planning to divorce. Others would manipulate figures by knocking up ersatz payslips using desktop publishing programs.

"I don't want to say I became desensitised to it, but it gets to a point that you feel like you can't trust anybody," says Bitner. "I've always operated from the perspective that I'll give anyone the benefit of the doubt until they prove me wrong, but I've gotten to a point in business where I've become a little more jaded."

Members of the public were urged to stick to one broker rather than shopping around because each broker would check their credit record, and, through the sheer fact of being officially checked, fragile credit scores often fall. In one case, Bitner recalls that a loan came across his desk for a single family residence, depicted in a blurred long-distance photo. On closer inspection, it turned out to be part of a multi-occupancy office park.

The industry was barely regulated: in Texas, mortgage salespeople had to be sponsored by a registered broker. Bitner describes how 250 different loan officers were attached to a single one-man office measuring about 1 square metre, with licences pinned to every surface.

"There was a tremendous amount of ignorance. The entire industry - brokers and lenders - are largely looking to the guidelines that are being brought to us from up above, from Wall Street, to say this is an acceptable level of risk," he says.

Fast-talking, articulate and animated, Bitner blames the fragmented nature of mortgage lending for the industry's dramatic fall to earth. Like a drug ring, he says a hierarchical structure allowed players to continue passing on risk at a faster and faster pace, without anybody pausing for thought.

"It used to be one bank that did everything [on a loan]: underwrote it, securitised, wrote on it, foreclosed on it," he says. "Securitisation allowed us to break it up into so many components where nobody in the chain really had a strong, vested, monetary interest in how that bond performed over time except for the bondholders."

He reserves his greatest ire for credit rating agencies that continued to attach high marks to packages of high-risk mortgages until the mortgage market had begun to collapse in 2007. "The rating agencies were supposed to be the independent arbitrators, the umpires. But the only referee in this entire match is largely dysfunctional; it might as well have been sitting on the sidelines drinking a fifth of gin and tonic."

As a sub-prime lender, Bitner accepts that he was far from blameless. He was, at times, knowingly marketing unrealistic loans. Bitner viewed one common product, providing 95% finance to people with ultra-low credit scores, as "absurd". But he defends the principle of sub-prime lending and maintains that in his five years he did more good than harm.

Gratifying

"My job felt amazingly gratifying. I don't think I've ever felt as gratified in work that I did. You are seeing loans that are performing. You are seeing people who would not otherwise qualify."

Yes, he admits, things ran badly out of control and everybody - from consumers to brokers, lenders, banks and the Federal Reserve - shares responsibility. But he insists that underlying intentions were sound: "There's something very empowering about this business. It's helping those people who are trying to achieve the dream of home ownership. Or, forget about the dream, they're just trying to get their family into a house. Why is that such a bad thing, if we can manage the risk?"
CV

Age 41

Education Katella high school in Anaheim, California; Northern Arizona University; masters degree in communication from Cornell University

Employment Worked for mortgage, insurance and finance companies including EquityLink Financial, GE Capital and GMAC Residential Funding before co-founding sub-prime lender Kellner Mortgage Investments in 2000; left in 2005 and now works for an online news provider, HousingWire

Family Married with two sons

Hobbies Scuba diving; supporting the Dallas Cowboys football team

http://www.guardian.co.uk/business/2008 ... hardbitner

Don't want to bring everyone down, but truthfully can anyone here think of anything the Bush dictatorship has done to enhance America and Americans? Since he became el presidente almost eight years ago, what has this dictator done for you and your family. He along with the devil's deciples Cheney and Rove have done everything within their power to destroy this country, and they continue this up to the very last minute. Kinda reminds you of the old Dracula movies... don't forget to include the other crooks, Bitchosi and Greed (oh I mean Reid). If any of the aforementioned people are in favor of something, better run as fast you possibly can !!!

Dianne,

YOu are so right!

We have to admit that this administration has greatly greased the skids, but it's both so called parties.

There are things we can do not to stop the bail out, but to protect ourselves and it's time we become pro active about it.

The real answer to this crisis is, firstly, a massive dose of trust-busting, so that no bank or investment bank or insurance company is so big that its failure becomes a threat to the financial system, and thus the government has to rescue it with taxpayer money, and secondly, a return to the era of Glass-Steagall, when it was illegal for banks to also be in the investment banking busiiness.

YES DEFINITELY. NO BANK SHOULD BE SO HUGE AS TO THREATEN THE ENTIRE FINANCIAL SYSTEM. AND GLASS-STEAGALL....DEFINITELY. IT WORKED FOR WHAT? 70 YEARS OR SO? YES BRING IT BACK.