MarketWatch featured an article with the intriguing title “Rescue the economy? Try the SEALS.” Here are some highlights:
President Barack Obama has put the wrong federal agency in charge of the rescue of the financial system. Instead of hiring Tim Geithner and the TARP, he should have hired the U.S. Navy and the SEALs.
When lawless pirates captured an American sea captain, the Navy put the hostage first. Now he’s safe, and the hostage-takers are dead or jailed.
When lawless bankers captured the global economy, Geithner put the hostage-takers first. And the hostage-takers are stepping up their demands: Change the accounting rules, guarantee us against any losses from the toxic assets, and rig the stress test so we all come out smelling like roses.
Old-timers may remember with nostalgia the days when it was easy to tell the difference between a major financial institution and a criminal enterprise. Those days are long gone.
Consider, for instance, the indictment unveiled last week against a San Diego street gang on multiple counts of mortgage fraud. According to federal prosecutors, the gang arranged to buy 220 properties for more than $100 million from 2005 to 2008. They overpaid for the properties by taking out liar loans using phony appraisals. They then funneled a kickback to a company controlled by the defendants, the indictment says.
Liar loans? Phony appraisals? Kickbacks? That sounds pretty much like the business model for the mortgage brokerage industry in California during the bubble. Maybe the real complaint is that the mob was muscling in on their territory.
Or consider the report in Monday’s Wall Street Journal that the Troubled Asset Relief Program oversight panel is investigating complaints that the banks that received money from the TARP are raising interest rates and imposing new fees on customers.
It is indeed shocking to learn that banks are behaving like banks. Isn’t the whole point of the TARP to help the banks get back on their feet? And if they can’t sell trillions of dollars in credit default swaps to each other, the most profitable line of business they have left is the customer-gouging unit, also known as their credit-card businesses.
Citigroup defended a recent loan promotion that didn’t disclose that the annual interest rate was 30%. The interest rates “compare competitively to similar offers in the market,” a Citigroup spokesman told the Journal. So this is like an offer you can’t refuse? Liar loans, phony appraisals and kickbacks have been the mode of operation for the years leading up to the bursting of the real estate bubble. In order to really rescue the economy those, who led us into this mess, need to first be removed from their positions of power and replaced by management with competence and integrity. That’s one issue but to me, there is much more at stake. While there has been much talk about outright fraud and deception in the banking and mortgage industry, I have yet to see anyone being brought to justice. Quite the contrary; you only read about the very few who have been let go on good terms, and they are happily sailing into the sunset with their golden parachutes. This really concerns me, and I have asked myself on many occasions “has the American justice system failed?” What’s your view?
[My emphasis]
Comments 8
I totally agree with you. Some of the biggest banks want their cake and to eat it too. They got billions, but now many of them say the hard times are not past, so they are going to have to charge high interests on mortgages, other loans and credit cards. Isn’t this a big part of how the TARP money was supposed to prevent? Now, many of the big banks, and I predict manly more soon, are going to survive by “bleeding” the fragile economy, with these high interest rates. Talk about injustice!!! We’ve just been slammed, and it’s not over, by any means.
Ulli,
We can blame the bank management or maybe I should say bank mismanagement all we want and rightly so, but what about the people who applied for those home loans that eventually failed? I believe those loan applicants knew they couldn’t afford the payments when the ARMs interest rates were adjusted at a later date, but thought the property would go up so much in value that they could sell the property very easily at that time, but the market tumbled and left them holding the bag which they handed back to the banks. So it seems that the blame is 50% lender, who maybe should do jail time and 50% borrower who really when you think about it was in many cases apparently fraudulent by over stating wadges and various other means to repay the debt so maybe they should do some jail time as well, just a thought, I want to give credit where credit is due.
R.S.
Our practice is to put everything we spend onto one credit card. When that bill comes due, we pay it that day or at least that week.
That puts us in the “reward” catagory. I think the credit card company calls those who pay their bill before the due date, “deadheads,” or something comparable.
Point is, the card company loses money on us every month. In the last eighteen months, we bought $1500 in scaffolding with our reward money.
That will almost keep up with inflation. If everyone would do this, we could bring the credit card companies to heel.
YES Ulli Agreed the Banks scammed us now refuse to loan us. Our most intelligent financial wizards ie Paulson who engineered the TARP and is now out of sight collecting his rewards for supporting his wealthy banking friends.The smarter ones resigned before they got caught and caused more damage ie Oneil etc. Secondly Auto makers have over priced their cars for years.We all have seen year end discounts of 10=15 thou and they still made $$$.Now why cant they use the same principal of discount to turn the inventory into cash flow until the econ gets upright.Anyone whos been in a dealers office gets the same old dirty tricks/extras shoved down their throat/incentives disappear/hi pressure tactics and the same old malarkey from salesmen who make promises then go into the Managers office to get approval which is always –WE cant sell at that figure–Let the Dealers clean up their act–honor their advertising and settle for a fairer % and cars will fly off the lot. Sorry for the rant but just left the Dealers Office !!!!!
Richard
Ulli,
I agree with you, if the borrowers for home loans lied about their income, in order to get their mortgages, they committed fraud.
However, I’ve bought a lot of homes, in my time, and every time I’ve bought one, I’ve had to produce my last year’s income tax and a copy of several months of my pay, if I was employed, and if I was self-employed they wanted to see my business records in depth. Then, if I was an employee, the lender also called my employer to verify how long I had been employeed and my pay.
If the mortgage companies didn’t do this, I think they were negligent. I bet on these “toxic assets” (gotta still love that name – something’s poison but it’s an asset???P ) loans that the mortgage companies, i.e., the banks did not do due diligence before they made the loans. My bet is that for most of these toxic asset loans that the banks were thought that the real estate values would continue to go up and they could also re-finance the ARMS and make out like bandits — and they have — anyway.
Justice System? What’s that?
Things have CHANGED baby!
The banks will “bleed” the economy high interest loans, in oredr that the banks survive. This is the next phase the financial system will put on the economy, and the economy will stall. This is another reason that the bear market will evenaually return. We can’t have an economy in which credit is too high for people and businesses to get loans at reasonable rates, but this is what the banks are going to do to survive — charge excessive rates on loans. Criminal? I don’t know. Certainly, very bad for an economy, which is already on life support.
Again, I have to check my spelling, before I post my comments. I apologize for that.