Wednesday, December 12, 2007

"PRUDENT AND LOGICAL FOR THE BANKS THAT SOLD THIS TOXIC WASTE TO BUY IT BACK AND FOR A LOT OF PEOPLE TO GO TO PRISON"

MORTGAGE MELTDOWN Interest rate 'freeze' - the real story is fraud

Bankers pay lip service to families while scurrying to avert suits, prison

Sunday, December 9, 2007

New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. . .

. . . The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

--read entire article--

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In a well-ordered economy, where America lived within its budgets and paid down its national indebtedness, resisted the greed of special interest tax giveaway, funded the wars it waged and properly regulated hedge funds, the sub-prime mortgage scandal would not exist, much less threaten to bring down the global economy.

There is more than one kind of global warming that threatens the planet.

Overheated housing, where ads actually exist for "homes under $5 million" in markets across the country and choice NY condos sell for multiples of $10 million, might just have tipped off investors that a bubble was in the making.

Ben Bernanke and Henry Paulson will take the heat, but the guardian who failed us at the gates was a sleepy-eyed, inattentive, bamboozled Alan Greenspan. Alan's gone on to write the expected self-serving book and the world is left holding the bag.

I urge you to click the link to Sean Olender's article. It lays out in logical and understandable language the economic tsunami about to strike. His analysis makes understandable the unreality of a market in the mid 13,000 range--nervous, but unaware of the abyss at which it stands.

Economic disasters of global proportion always have a trigger. But in order to fire, in order to bring down the house, the gun must be loaded and that's a matter of decades rather than moments. The sub-prime mortgage 'scandal' is more than a mere trigger. The gun it seems has been fired and a panicked Fed and Treasury are running after the bullet.

The true economic crime has plenty of suspects, but the most obvious is allowing a market vehicle that no one properly understood to grow and flourish like a cancer without any oversight--indeed without even so much as a diagnosis.

We have a name for this carcinogen now--hedge funds--but still not even the beginning of a treatment. In the absence of cure and after a life of disregard and denial, we can expect the usual in such cases--collapse.


* For more in-depth articles by Jim on Business and Economy, check out Opinion-Columns.com