It is rather ironic to see the Senators grilling Goldman Sachs when it was deregulation of the markets which allowed the bankers to turn Wall Street into the off track betting casinos they have become.
In order to sell billions in mortgage backed securities, they needed to originate billions in sub prime loans. These banks couldn’t make loans fast enough, so they made loans up like interest only loans, and adjustable rate mortgages so anyone who was breathing could get a loan.
Then they pooled these risky mortgages into mortgage backed securities. Out of this came the CDO. As Michael Lewis in his book the Big Short explains it, “Goldman Sachs created a security so opaque and complex …the synthetic subprime mortgage bond-backed CDO, or collateralized debt obligation. In a mortgage bond you gathered thousands of loans, and…created a tower of bonds, in which both risk and return diminished as you rose. In a CDO you gathered 100 different mortgage bonds--usually the riskiest, lowest floors of the original tower---and used them to erect an entirely new tower of bonds”.
Then they lied about these bonds. “ratings agencies who were paid fat fees by Goldman Sachs and other Wall Street firms for each deal they rated pronounced 80 percent of the new tower of debt triple-A”.
Another risk they made up are credit default swaps (insurance against mortgage defaults) as explained by Michael Lewis. The credit default swap had just been invented by the bankers at J.P. Morgan who then went looking for a company willing to sell them-and found AIG.“. Then after making billions, we the tax payer were sold a bill of goods and had to bail out AIG.
They created risk out of thin air and we backed it up. Mortgage backed securities, CDO’s and CDS’ are bonds which aren’t regulated on exchanges.
We need politicians with stiffer back bones to enforce regulation which will prevent the Wall Street bankers from controlling a nation’s economy through fabricated debt-backed bonds.
The bankers do not want any regulation of derivatives. And with their control of the media, their propaganda will convince citizens to believe the false advertisement that regulation will lead to more bail outs.
If we don’t regulate derivatives, it’s only a matter of time before the banks will be allowed to steal more of our retirement, savings and homes and we‘ll be bailing them out again. It’s my bet we won’t see much in the way of regulation. After all, the banks hold the winning hand, it’s called millions and billions in campaign cash.
