Wall Street Eats Main Street

By bailing out Freddie Mac and Fannie Mae the US government has become the largest holder of mortgages in the country. As government chartered private enterprises, Fannie Mae and Freddie Mac were able to borrow money at a lower rate, and both were intended to buy mortgages to put cash back into the hands of lenders, enabling them to make even more mortgage loans. Fannie Mae, created in the 30’s, originally could only buy FHA or VA backed loans. Freddie Mac was created in the 70’s and was only supposed to buy S&L loans; loans backed by deposits and put out by savings banks.

During the 80’s, Countrywide; Ameriquest and other non-bank mortgage lenders were funded by wholesale loans made by investment bankers on Wall Street. These wholesale loans permitted non-bank lenders to capitalize on the sub prime loan industry that led to the destruction of our mortgage banking system that had worked for over 150 years. In the 80’s these hugely profitable non-bank mortgage lenders sued and won to have Freddie Mac and Fannie Mae buy their sub prime high risk loans.

The sub prime lenders coerced people into paying higher interest rates to off set closing costs and points amongst other tricks such as using fake appraisers to forge the value of a home higher so they could loan more money to make more money. The higher the interest rate the higher the profits for non bank lenders, mortgage brokers and Wall Street investment firms like Lehman Brothers and Bear Stearns amongst others who made billions from people who didn‘t have much.

They were able to perpetrate this scam on something called a “Mortgage Backed Security” created by Lew Ranieri of Wall Street. The non bank lenders would sell their mortgages to Wall St, which securitized them as “MBS” bonds and then sold them to pension plans, mutual funds and banks from other countries.

The CEO’s of Freddie Mac and Fannie Mae couldn’t buy enough of them to have on their balance sheets, a trick for making future profits look like profits made today. Freddie Mac begged Countrywide to buy their sub-prime loans. Now, we as tax payer are going to pay for these huge investment frauds and scandals while the few walk away with billions bilked from our savings, our retirement and our homes.

Two months ago Secretary of the Treasury Henry Paulson was saying that we weren’t going to bail out Freddie Mac and Fannie Mae, he just needed the new bail out powers granted to him by Congress to help the market gain “confidence” knowing they had this possible back stop of a government sponsored tax payer bail out.

Then our government sponsored a bail out of Bear Stearns (a Wall Street investment firm and wholesale lender to sub prime non-banks) by loaning JPMorgan Chase 32 billion at two and a half percent interest to purchase Bear Stearns. At the time of this bailout Secretary Paulson said he didn’t know how many more companies had participated in predatory lending and dangerously risky investments or as he phrased it “moral hazards”.

The underlying ‘secret handshake’ of Wall Street; sub prime lenders, and all those who bought these MBS was that the private mortgage companies; Fannie Mae and Freddie Mac, were insured by the government so… no need to worry. If anything happens the US ‘guvmint’ will bail them out.

For decades the utopian anarchists who run the government have told us that in a capitalistic society the market will “regulate” itself. However, it appears that when the market is flooded like now with “moral hazards”, it cannot regulate itself. It ends up needing a bail out by the same big government they so despised when it came to regulating them. We’re spending billions to bail out the Wall Street bankers who funded these predatory sub-prime lenders.

The mortgage industry had worked well for 150 years, but Reagan and the other Republican and Democrat politicians alike deregulated the industry by using the ruse that these ‘rules’ crippled our capitalistic democracy, with a government that was too big and had too many regulations. We the US tax payers get big bills for bail outs when we get rid of big government.

For all those who are against nationalizing the oil industry they should be against nationalizing the mortgage industry which is what Bush has done by taking over Freddie Mac and Fannie Mae. The US tax payer now owns a 2 trillion dollar debt in mortgage loans.

Trillions for Iraq and billions to bail out the greedy bankers on Wall Street. Where is this money going to come from? It’s the impoverished children, the elderly poor and the disabled veterans who are the ones this government scales back on first, the rest of us are next. Say sayonara to Medicare and Social Security, we can’t afford these “entitlement” programs created by big government that helps society because we’re too busy baling out the greedy Wall Street investors and sub prime lenders like Ameriquest, Countrywide and the CEO’s of Fannie and Freddie who, after being fired, will receive 24 million dollars between the two of them.