Category Archives: subprime debacle
When Enron fell apart, our nation tried to make sense of it. Congress critters tried to pass laws that guaranteed nothing like that ever happened again. Enron caused, by their actions in CA to manipulate the energy industry, the death of a very good friend of mine. We had rolling blackouts almost daily that summer in San Diego. She was killed when the traffic lights went out and someone t-boned her tiny little car, killing her instantly. But this isn’t really about Enron or my dear sweet friend that died because of their cold, calculating greed.
It’s about the banks and investment houses that shared Enron’s largess..and ultimately their losses as well. Its many of the same banks and investing companies that took TARP funds and/or were responsible for our recession now. Lets call them, the Enron Nine although only eight of them took part in the subprime meltdown. From The Nation link in this paragraph, with additional links added by me to those culpable bastards that still managed to stay afloat after Enron collapsed, only to become a large part of the subprime mortgage meltdown:
The “Enron Nine” (if we may call them that) are J.P. Morgan Chase, Citigroup, Credit Suisse, First Boston, Canadian Imperial Bank of Commerce, Bank of America, Merrill Lynch (bought by BofA for pennies on the dollar), Barclays, Deutsche Bank and Lehman Brothers (filed largest bankruptcy in history). These financial institutions collaborated with the now-bankrupt energy company in its financial sleight of hand–the deals that enabled Enron to inflate its profits, conceal its burgeoning debts and push its stock price higher and higher. Together and individually, the banks and brokerages raised at least $6 billion for Enron through the debt or stock issues sold to unsuspecting investors from 1996 through 2001, when the Enron illusion finally expired. Another $4 billion or more was channeled into Enron’s “partnerships” like Jedi, Chewco and LJM1 and LJM2, which became the principal mechanism for hoodwinking shareholders. These deals were often hurriedly arranged at year’s end to paper over the company’s true condition and keep the fraud from collapsing.
Why then, would we bail these fuckers out? Why would our government have such a short memory on what many of these banks and investment houses did in the 1990’s? It drives me up a friggin wall to realize that these sumbitches were just as culpable now as they were in the Enron debacle. Lehman Bros, thankfully, was allowed to fail this time around. They surpassed Enron as the largest bankruptcy ever filed in American Courts. Credit Suisse was a major player in the subprime debacle as was Barclays and First Boston. They actually fueled the subprime market as major backers of the subprime lenders.
Enron: The Smartest Guys in the Room was the title of a fantastic book written by Bethany McLean and Peter Elkind, which was made into a documentary by the same name. I watched the documentary again last night. That is when it hit me, that eight of the ten banks and investment houses that played dirty with Enron also contributed to the subprime mortgage meltdown and three or four took TARP funds to stay afloat this time around.
So, the assholes in the banking and investment houses certainly were not the smartest guys in the room…any room.
They were just greedy..real friggin greedy. Below is the amount of TARP monies and/or Treasury monies the two surviving banks and one investment company, which is now considered a bank, have taken so far:
Bank Of America-$52.5 Billion
JP Morgan Chase-$25 Billion
That adds up to a helluva lot of tax dollars don’t it? It should make us all madder than a rat in a tin can. Not only did they play fuck-around with Lay, Skillings and Fastow…many of these same bastards let greed rule the day now.
Evidently they didn’t learn from the Enron debacle. Or they just didn’t give a shit…your choice.
But we had no choice in what corporations the Treasury bailed out or who got TARP funds. So the only way I can rationalize the idiocy of giving money to these same crooks is this:
Our government employees, in charge of straightening this subprime shitstorm out, evidently smoke a lot of pot and they have a real bad case of short term memory loss. Or they just don’t give a damn either.
Below is a trailer for Enron: The smartest guys in the room. You will be surprised at how much of the verbiage in the movie fits today’s nightmare. Or maybe.. you won’t…
The Attorney Generals of 11 states, led by California’s Jerry Brown, have reached an agreement with BofA, owner of Countrywide Mortgage, over unfair and deceptive lending practices that will possibly benefit roughly 400,000 home owners Monday.
Of course BofA didn’t willingly reach this agreement to help homeowners. They were sued in those 11 states for Countrywide’s unfair and predatory lending practices with regard to subprime mortgages. The program will be monitored by the states and is mandatory for BofA under the rules of the settlement.
So, even though the Federal Bailout Package didn’t do shit to help homeowners, this settlement will. From the NYT:
Along with the direct relief, Countrywide will waive late fees of $79 million and prepayment penalties of $56 million and suspend foreclosures on delinquent borrowers with the riskiest loans.
A foreclosure relief fund will be created with $150 million from Countrywide to help borrowers who are four months or more behind on their payments or whose homes have already been foreclosed on. The company will also provide $70 million to help troubled borrowers relocate to rental housing. In all, Countrywide is setting aside $8.7 billion to help borrowers.
Of course Countrywide didn’t admit to any wrongdoing in the settlement. Funny how that works. The other states involved are; Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.
This settlement does NOT let off the hook Angelo R. Mozilo, the former chief executive of Countrywide Financial, or David E. Sambol, the company’s former president. Both those greedy bastards can still be charged with crimes.
Angelo Mozilo, as you may recall, was the founder and top executive at Countrywide. He reaped almost $122 million during 2007 in stock options alone.
It’s a legitimate question. I think the reasons are similar. Over at ProPublica, a great site btw, they have a good piece up entitled: Anatomy of a Bank Failure. In the writeup, they examine the failure of California’s IndyMac, aka Independent National Mortgage Corporation. IndyMac was the first big bank to fail in this nightmare on wall street. They hit the skids in July.
The article is interesting in that it points a finger at the federal government office known as the Office of Thrift Supervision or OTS. John Reich, the head cheese at OTS has faced questioning before, and usually blames someone else it seems, namely a Senate banking committee member.
On June 26th of this year, Chuckie Schumer wrote a letter to the OTS and the SEC asking wtf was going on with IndyMac. The letter was published in the media and immediately customers started pulling out their money. The ProPublica article paints a different picture of what was going down:
While Schumer’s famously ill-timed letter clearly hastened IndyMac’s end, a detailed review of filings with the Securities and Exchange Commission and the Office of Thrift Supervision for December 2007 and March 2008 suggest that prospects for keeping the S&L afloat were all but nonexistent: The lender’s demise was a matter of when, not if.
The filings raise the question of whether federal regulators felt it was more important to protect the bank’s shareholders and executives than to safeguard the Federal Deposit Insurance Fund that would ultimately pay for the losses. The current cost of the IndyMac failure, according to the FDIC, is $8.9 billion – a number that would undoubtedly have been smaller had the OTS called in the FDIC six months earlier.
As was the case with WaMu IndyMac, also a Savings and Loan, was neck-deep in the subprime mortgage debacle. When it was known that IndyMac was struggling, the OTS didn’t do what they could of to keep the taxpayers ass covered, in other words, they covered the banks ass. Again from the ProPublica writeup:
A conservative strategy by the OTS would have been to downgrade the S&L, and thereby limit the risk to the FDIC fund that protects insured deposits. Instead, to buy time in the hope that a new business plan would improve IndyMac’s earnings, regulators let the firm take modest write-downs of 5 percent or so in some of its troubled mortgage assets. This helped IndyMac keep its risk-based capital ratio barely above the 10 percent floor and allowed it to qualify as “well-capitalized,” thus avoiding being added to the FDIC’s list of problem institutions.
As a result, IndyMac was able to keep borrowing from the Federal Home Loan Bank and pulling in insured deposits. The insured deposits rose to $16 billion as of March 31, compared with $8.8 billion on June 30, 2007. The result: much greater exposure for the FDIC when IndyMac finally collapsed.
That was wrong on every level. This is a nation of people, not corporations. Or its supposed to be. It’s disgusting that time and time again, the OTS refused to turn IndyMac over to the control of the FDIC, buying their bullshit lines that things were getting better, when in reality they were lying their collective asses off.
In other words, they protected the CEO’s and shareholders as long as they could…to the detriment of the American Taxpayer which was left holding the bag of toxic mortgages and covering all the checking and savings accounts insured by the FDIC. IndyMac was sucking wind in 2007 and the OTS knew it. As this article from the Boston Herald notes about the loans IndyMac was holding at the time they collapsed:
IndyMac had 742,000 mortgages in its portfolio at the time – 60,000 of which were 60 days delinquent or at some stage of foreclosure.
That is a lot of payments that were not being made. But remember, these loans were primarily crap loans known as “Alt-A loans, dubbed “stated income” or “liar” loans, because people who received them often couldn’t demonstrate they could pay the interest on the loan, particularly if, after a period of time, the loan reset at a higher rate.“~ProPublica.
The first thing the FDIC did when they took over IndyMac was to halt all foreclosure proceedings and reexamine the loans and the individuals that got them. Of the 60,000 non-paying mortgages, 40,000 will most likely qualify for the governments mortgage loan rewrite program. This was not only a good thing for the homeowners it is also a good thing for the folks holding those ‘mortgage-backed securities’. As this Reuters article explains:
Restoring troubled loans into performing ones has yielded 87 cents on the dollar for a mortgage later sold, compared with 32 cents for nonperforming mortgages, Bair said, citing data over the past few years.
Of course Ms. Bair, the FDIC chairwoman could be full of shit too. The government is…cough..banking on older financial models for their optimistic data, plus they are praying to God that once the loans are rewritten, the individuals will continue to make the mortgage payments.
The truth is…no one friggin knows how this crap is going to turnout. No one..and its gonna take years to figure it the hell out because so many people got home loans they never would of gotten if rules, regulations and just common-fucking-sense had not been ignored.
From The Hill:
Senators found a rare chance for consensus Saturday on a broad housing bill aimed to benefit borrowers, mortgage firms Fannie Mae and Freddie Mac and communities hurt by the housing crisis.
The 72-13 final vote sends the bill to President Bush, who this week dropped a longstanding veto threat against the measure over $4 billion on community block grants. The legislation already passed the House on a 272-152 vote on Wednesday. All 13 ‘no’ votes were Republicans.
All no votes were Rethuglican..figures..they are the folks that wanted to take all the controls off banks and financial institutions..yet when the shit hits the proverbial fan..they don’t want to fix their fuckup. And, to add to this..the Rethugs are blocking any other bills until the Democrats lift the drilling ban. From The Hill again:
The GOP wants a more open amendment process that could allow a vote on lifting a congressional moratorium on offshore oil drilling.
“We want to address the issue of gas prices now,” said Minority Leader Mitch McConnell (R-Ky.). “The important thing to do is stay on the subject.”
Drilling will NOT do a fucking thing for the price of gas NOW you fucktard. Jesus Christ on a cracker..they still keep those talking points going long after they have been shown to be utter bullshit.