FIGHT THE POWER
SAVE YOUR MONEY
DON’T USE CREDIT CARDS
SEE THROUGH THE LIES
THERE IS NO FREE LUNCH FOR THE LOWER 99%, ONLY THE UPPER 1%
[The first in a series of educational entertainments.]
Why aren’t things getting better? Well, they aren’t going to, unless you ignore all the noise and distraction of the Internet, which only exists to extract and collect all your personal information including your social security number and your search key words in order to sell them to something else, either a corporation or a government. Everything else on it is designed to distract you
All the power and money in America is concentrated in the dark recesses of sociopathic Alpha male Ponzi schemers and their enablers who look at everyone else as suckers, including their shareholders and investors. They freely use company money to pay for cocaine and hookers and mask such activities with invoices marked “market analysis”. Then they go home to wife and kiddies in their gated McMansion communities. (See Charles Ferguson's documentary "Inside Job" for cleavage shots.)
So what happened, you may be wondering as you sit in your kitchen table surrounded by 2nd notices from loan companies, getting calls from “collectors” telling you they’re sending a sheriff to serve process, worrying about your medical bills, worrying if you’ll ever get another job, wondering if you too will be homeless. What the f**k is going on?
It was a gigantic Ponzi scheme that had a lot of elements to it. I don’t want to confuse you with the details. It’s mainly about people betting huge amounts of money putting very little down, then when the scheme collapsed, having someone else pay their bets. AKA privatized profits, socialized losses. And business is continuing as usual. It will get worse. The November elections will usher in more people spouting the lie of “free market” and “less government”. Those are just code words.
The way to understand the heart of darkness of the Wall Street beast is to realize that:
• It is not regulated
• People get paid up front for making deals, not for how the deals unwind.
• People are motivated by the sizes of their bonuses. In January 2011, Wall Street will pay out a record $144 billion in bonuses (WSJ 10/11/10)
It’s how these alphas know they’re on top. All other concerns: moral, ethical, legal, humanitarian, fall by the wayside.
What gives me the right to say these things? I am the product of wasteful government spending. I went to public school all the way up the line, proudly graduating with an honors BA from SUNY. I did err in going to a private law school but I made up for that by dropping out after a year.
The American government under the rule of law should exist to help the people. There is no other reason for it to exist. It should not serve as a way to transfer public money to private interests.
I’ll give you an example. Maybe you heard about some sort of mess about legal problems with mortgage foreclosures. I won’t get into it but suffice it to say that there was a great deal of criminal activity on the part of the Ponzi schemers, the people who got you to sign off on a mortgage you didn’t understand because they got paid more for a bad mortgage.
They didn’t keep the mortgage; they turned around and sold it to a bank. The banks took your mortgage and combined it with millions of others then put them through a sausage grinding machine called “securitization”. (Don’t pay attention to the bullsh*t terminology. Just remember, they’re lying to you.) Afterwards, they sliced up the sausage into little pieces and called each piece a “bond”. Just as though it were good ole U.S. Savings Bonds, the kind your grandmother gave you for your birthday. Are you saying there’s something wrong with my grandma?
The banks paid ratings agencies like Moody’s and Standard & Poor’s to slap on a Good Housekeeping Seal of Approval, a triple-A rating. Without that rating, you see, they couldn’t sell this phony product to the biggest cash cows of all, gigantic state pension funds like CALPERS. Pension funds cannot by law buy any investment with less than a triple-A rating.
So the Wall Street c**ks**kers paid their lackeys at the ratings agencies for that seal of approval which should have been a skull and crossbones warning label instead. They sold trillions of dollars worth of these mortgage-backed securities that way, taking a cut each time. Everyone in this daisy chain got a cut.
It was quite a machine, this sausage machine. Lenders offered potential homeowners the WORST mortgages, subprime, even if the homeowner qualified for a prime. The lender was paid more because the bond that came out of it paid more interest to its investors (its investors being the unwitting pension funds—your retirement money—buying worthless product. That makes it a PONZI scheme). Am I losing you? Hope not.
Did you know on Wall Street that it’s possible to bet on things you don’t own with no money down? Let me draw you a picture. It’s as though someone can buy fire insurance on your home without owning it and without telling you. You’re pretty happy until one day you drive home and your house is burning down. Everything you ever owned was in that house. You insured it, sure, you can rebuild, but can that make up for the calamity?
Meanwhile, up in the gated community, another person who also insured your house is sitting in his McMansion with original Van Gogh and Picasso on his walls and Cathedral ceilings with stained glass windows holding the wad of cash from your burned down home in his hand. He’s contemplating what to use it for. Should a small part of it go for the $50,000 a year exclusive 92nd Street Y pre-K he pulled strings to get Brittany into? Or should he hire a new wine steward for his place in Tortuga? He may even have hired an arsonist to burn down your house. You are of no consequence.
First in a series by http://whereiscassandra.blogspot.com
Wednesday, October 20, 2010
Showing posts with label Wall Street. Show all posts
Showing posts with label Wall Street. Show all posts
Wednesday, October 20, 2010
Monday, July 9, 2007
Irrational Exuberance Runs Amok
Alan Greenspan, the party-crossing Chairman of the Board of Governors of the Federal Reserve for 20 years, was very circumspect in his pronouncements, positively cryptic. As the Wall Street dot-com frenzy hit its peak in 1999, he actually ventured into straight talk. He called what was going on "irrational exuberance", as share prices of dot-coms grew higher and higher, unjustified by any existence of profits. Even dot-coms which were barely more than domain names managed to collect millions of dollars from eager investors, until the frenzy peaked and share prices collapsed.
Maybe Greenspan should have said something before that happened, but "irrational exuberance" caught on as an apt expression of a market bubble, that is, bidding up the price of something until it's all out of proportion and the next stage is a collapse of prices. Wall Street seems like a rollercoaster with each car filled with gamblers betting on the next big thing until they reach "irrational exuberance", irrational meaning "deprived of reason" and exuberance meaning "effusive and almost uninhibited enthusiasm". They're riding high and there's no end in sight. They refuse to believe despite all evidence to the contrary that reality will set in and prices without foundation will collapse.
That is what is happening in the housing market. It accelerated in value from (year) until (year), when the tipping point occurred and housing prices began their descent. It was inevitable that the housing boom would start to bust, or that the housing bubble would begin to burst (whichever metaphor you prefer). The boom was fueled by an atmosphere of low inflation and cheap, easy credit And Wall Street introduced some innovations to the previously staid practice of granting mortgages.
It used to be that you'd go to a bank for a home loan (mortgage) and the bank would determine whether you were creditworthy by assessing factors such as whether or not you were employed, whether you paid your bills on time, had a steady income and could make monthly mortgage payments. In exchange for giving you money, the bank wanted to know if it could be repaid. The quality of your creditworthiness would determine the interest rate on the mortgage. If your credit was good, you'd get a lower interest rate. If it wasn't so good, you'd get a higher interest rate. And if you were deemed a bad risk, you didn't get a mortgage, period, until you could build up your creditworthiness.
Then the lending structure changed. Wall Street smelled the opportunity to make a lot of money from so-called subprime mortgages--mortgages given to people who wouldn't normally be considered qualified buyers. Instead of banks granting mortgages, Wall Street investment firms would hire a lender who would in turn hire a mortgage broker who would grant the loans to unqualified buyers so they could become homeowners.
There were plenty of incentives to sell these loans: brokers and lenders could charge exorbitant fees (much more than with prime loans) to grant these loans and Wall Street could turn around, repackage the loan into something called a "collateralized debt obligation" and sell it to investors on the premise that even though these CDOs were based on bad credit, the interest rates were higher than junk bonds and housing prices kept going up. In turn, they wouldn't look very deeply into the creditworthiness of the borrowers. In fact, in Wall Street circles these subprime loans were known as "liar loans" because the borrowers often lied about their income. Wall Street wasn't too concerned as to whether or not the borrowers could pay them back; housing prices kept escalating so the value of their homes kept increasing. If a borrower couldn't meet his obligations, he would just borrow some more money (refinance) based on the higher equity he could extract from his home. Everything was jake until housing prices stabilized and buyers began withdrawing from the housing market because they couldn't automatically "flip" the house (resell it for more money). Sellers began outnumbering the buyers and prices went down. So did the equity in these sub-prime financed homes. Borrowers in over their heads with these subprime loans couldn't refinance and became delinquent in their mortgage payments. Foreclosures multiplied. Soon whole neighborhoods were dotted with empty, boarded-up houses, which had the effect of driving down the value of the perfectly nice borrower next door who did have a prime mortgage. So even those with good credit began being affected. The inventory of unsold existing homes increased. There are still construction contracts requiring builders to build new homes in the face of an oversupply of existing homes.
Most subprime mortgages are ARMs (adjustable rate mortages). An ARM is a mortgage with an interest rate that may change, usually in response to the Treasury Bill rate or the prime rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates. ARMs usually start with better rates than fixed rate mortgages in order to compensate the borrower for the added risk that future interest rate fluctuations will create. So far the subprime borrowers have been paying the lower rates; soon the mortgages will adjust and monthly mortgage rates will increase, leading to more foreclosures. And around and around it goes, the roller coaster turning into the ferris wheel, an endless loop of cause and effect with no end yet in sight.
Maybe Greenspan should have said something before that happened, but "irrational exuberance" caught on as an apt expression of a market bubble, that is, bidding up the price of something until it's all out of proportion and the next stage is a collapse of prices. Wall Street seems like a rollercoaster with each car filled with gamblers betting on the next big thing until they reach "irrational exuberance", irrational meaning "deprived of reason" and exuberance meaning "effusive and almost uninhibited enthusiasm". They're riding high and there's no end in sight. They refuse to believe despite all evidence to the contrary that reality will set in and prices without foundation will collapse.
That is what is happening in the housing market. It accelerated in value from (year) until (year), when the tipping point occurred and housing prices began their descent. It was inevitable that the housing boom would start to bust, or that the housing bubble would begin to burst (whichever metaphor you prefer). The boom was fueled by an atmosphere of low inflation and cheap, easy credit And Wall Street introduced some innovations to the previously staid practice of granting mortgages.
It used to be that you'd go to a bank for a home loan (mortgage) and the bank would determine whether you were creditworthy by assessing factors such as whether or not you were employed, whether you paid your bills on time, had a steady income and could make monthly mortgage payments. In exchange for giving you money, the bank wanted to know if it could be repaid. The quality of your creditworthiness would determine the interest rate on the mortgage. If your credit was good, you'd get a lower interest rate. If it wasn't so good, you'd get a higher interest rate. And if you were deemed a bad risk, you didn't get a mortgage, period, until you could build up your creditworthiness.
Then the lending structure changed. Wall Street smelled the opportunity to make a lot of money from so-called subprime mortgages--mortgages given to people who wouldn't normally be considered qualified buyers. Instead of banks granting mortgages, Wall Street investment firms would hire a lender who would in turn hire a mortgage broker who would grant the loans to unqualified buyers so they could become homeowners.
There were plenty of incentives to sell these loans: brokers and lenders could charge exorbitant fees (much more than with prime loans) to grant these loans and Wall Street could turn around, repackage the loan into something called a "collateralized debt obligation" and sell it to investors on the premise that even though these CDOs were based on bad credit, the interest rates were higher than junk bonds and housing prices kept going up. In turn, they wouldn't look very deeply into the creditworthiness of the borrowers. In fact, in Wall Street circles these subprime loans were known as "liar loans" because the borrowers often lied about their income. Wall Street wasn't too concerned as to whether or not the borrowers could pay them back; housing prices kept escalating so the value of their homes kept increasing. If a borrower couldn't meet his obligations, he would just borrow some more money (refinance) based on the higher equity he could extract from his home. Everything was jake until housing prices stabilized and buyers began withdrawing from the housing market because they couldn't automatically "flip" the house (resell it for more money). Sellers began outnumbering the buyers and prices went down. So did the equity in these sub-prime financed homes. Borrowers in over their heads with these subprime loans couldn't refinance and became delinquent in their mortgage payments. Foreclosures multiplied. Soon whole neighborhoods were dotted with empty, boarded-up houses, which had the effect of driving down the value of the perfectly nice borrower next door who did have a prime mortgage. So even those with good credit began being affected. The inventory of unsold existing homes increased. There are still construction contracts requiring builders to build new homes in the face of an oversupply of existing homes.
Most subprime mortgages are ARMs (adjustable rate mortages). An ARM is a mortgage with an interest rate that may change, usually in response to the Treasury Bill rate or the prime rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates. ARMs usually start with better rates than fixed rate mortgages in order to compensate the borrower for the added risk that future interest rate fluctuations will create. So far the subprime borrowers have been paying the lower rates; soon the mortgages will adjust and monthly mortgage rates will increase, leading to more foreclosures. And around and around it goes, the roller coaster turning into the ferris wheel, an endless loop of cause and effect with no end yet in sight.
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