Here is another amazing article written by George Mantor.
RISMEDIA, January 12, 2010—Regular readers of my column know that I have been searching for America’s lost prosperity for the last few months, and the ongoing revelations and discoveries have provided ample material for my writing.
What I have discovered is easily the largest financial story in history; a massive transfer of wealth from real estate and equities right into the pockets of the bailed-out, over-bonused banksters.
Quoting Reuters, “U.S. Attorney General Eric Holder said on Friday a newly created interagency task force was focusing on financial fraud and targeting for possible prosecution bankers whose actions contributed to the financial crisis.”
Oh, that will be a busy little task force, indeed. Sooner or later, this story will make it to the front page, and then it won’t go away for a long time.
This isn’t over. And, the toll continues to mount. AIG, the insurer of bad loans, was back in the news Thursday after Bloomberg reported that the Federal Reserve Bank of New York prodded the troubled insurer at the end of 2008 to withhold details of its bailout deal from the public. Isn’t it our money? What don’t they want us to know?
Considering that this is but one piece of the puzzle, we are left to wonder how much else is being kept from us. If we knew the extent of what has happened would we panic and cause world-wide collapse of the monetary system? Who cares? This is the very system that robbed us of our prosperity.
Money just doesn’t go away. And, this was an awful lot of money. According to one estimate, household net worth plummeted a whopping $14.2 trillion, and that doesn’t count the investors money, the default insurance, or the bailout.
Following the Money
Since no one else seems to be asking the right questions, I intend to keep digging and presenting what I find. I’m just curious and, from my email, it appears that many of you want me to keep after it.
I intend to, because, if we can find the money, maybe we can get it back.
I wanted to know what happened and how it happened, and I knew from my own experience that it certainly could not have been subprime borrowers or as I keep hearing from talking heads and paid shills, “homeowners who used their homes like ATM machines.”
It’s called shifting the blame to the victim.
What about this? Our wages have been shrinking and in order to keep up with the rising cost of just about everything, we caved-in to the pressure of a legion of loan officers and subliminal seducers.
According to the Associated Press, incomes have declined across all demographics, but to a greater extent for middle and lower income groups. Median income fell in 2008 from $52,163 to $50,303.
From Your House to Wall Street
Wall Street doesn’t see declining wages as a problem. Wall Street continues to argue that Americans are losing their prosperity because their wages are too high. Doing that with a straight face has to be difficult.
As it turns out, they found the perfect guys to do it for them and the piece was published in The New York Times. “American workers are overpaid,” the article begins. Who would write such a piece? Not a working class writer. I knew it had to be those with the most to gain if people believe that crap.
Guess who? Wall Street! I looked up the authors and it turns out that they are public relations consultants. This from their own website:
Breakingviews.com is the world’s leading source of agenda-setting financial insight. Our aim is to become the lingua franca for the global financial community.
The “lingua franca?” I’m just a country boy and I do not recall much of my Latin schooling, so I confess that I had to look that up. It sounded kind of nasty.
From Merriam Webster–Main Entry: lin·gua fran·ca
Etymology: Italian, literally, Frankish language
Date: 1619
1: often capitalized : a common language consisting of Italian mixed with French, Spanish, Greek, and Arabic that was formerly spoken in Mediterranean ports
2: any of various languages used as common or commercial tongues among peoples of diverse speech
3: something resembling a common language <movies are the lingua franca of the twentieth century — Gore Vidal
Take your pick. I now see that much of my intellectual deficiency stems from my lack of exposure to Mediterranean ports in the early 1600s.
It sounds to me like what these boys are trying to say in their own obscure Italian, French, Spanish, Greek, Arabic way is that they aim to be the biggest BSers on behalf of the self-interests of Wall Street.
“Agenda-setting” is another term for spin. Let’s see who their readership is, again from their website.
“Our real-time subscription service currently reaches around 15,000 financial professionals such as investment bankers, senior corporate executives, hedge fund managers, lawyers and private equity professionals”
That would be Wall Street. Let’s see who the writers are.
Martin Hutchinson covers emerging markets and economic policy from Washington, drawing on 25 years of experience as an international merchant banker. He ran derivatives platforms for two European banks.
Edward Hadas writes about macroeconomics, markets and metals for breakingviews. Before becoming a journalist, he worked for 20 years as an equity analyst in Europe and the US.
Isn’t that a coincidence? They used to be part of Wall Street but now they help “set the agenda” by getting that agenda into print disguised as news.
The agenda is that Wall Street thinks the middle class earns too much and that we should accept a 20% wage decrease as the only way to revive the economy and return to prosperity. “We have to destroy the middle class in order to save it.”
Apparently outsourcing all of those jobs to Bhopal and importing 10 million low wage laborers wasn’t enough to “save” the middle class.
The Worlds Most Productive Workers Are Right Here
Despite all of the attempts to characterize American workers as lazy and less productive than foreign workers, it’s just more “agenda setting.” According to a 2007 report by The United Nations, the United States “leads the world in labor productivity.”
The report goes on to say that American workers stay longer in the office, at the factory, or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year.
CEOs Have Gotten All of The Rewards
We are not all in this together. Apparently, our outlandish incomes haven’t hurt executive pay.
For many years, Business Week has been comparing average CEO annual pay to average factory worker pay. The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options. It was at 411:1 in 2005.
It’s even more revealing to compare the actual rates of increase of the salaries of CEOs and ordinary workers; from 1990 to 2005, CEOs’ pay increased almost 300% (adjusted for inflation), while production workers gained a scant 4.3%. The purchasing power of the federal minimum wage actually declined by 9.3%, when inflation is taken into account.
If you aren’t outraged yet, just keep in mind that Wall Street just gave itself bonuses that will average $700,000 per employee. Most will go to a handful of people, but wow!
So, when they attempt to blame us, we all must understand that first, it isn’t true, and second it is an attempt to draw attention away from the real problem.
If it were only losses associated with residential mortgage backed securities, it wouldn’t even be a blip on the financial radar screen.
Much Bigger Than Residential Mortgages
This didn’t start or end with mortgages. The same securitization methods used to sell residential mortgage pools were used to fund massive corporate debt, commercial property debt, credit card debt, automobile loans, or virtually any debt instrument.
Banks benefitted from the fees associated with origination of the individual loans, benefitted from fees associated with assembling the pools, rating their default risk (wink, wink), managing the assets in the pools, and servicing the loans.
But wait, there’s more! Wall Street knew from annual reports that the American economy was fading. Yet their incomes were dependent on the worldwide perception of sustained growth.
They knew better than anyone that the debt economy was a house of cards, so they bet on it’s collapse, which they knew for certain would occur because they knew the real quality of the loans they were making and they knew that, like any money machine that depends on new investors to grow, collapse is inevitable.
So, they bought credit default swaps in values of multiple of the loan amounts.
The most interesting revelation to date has been that due to missteps in the handling of original notes, as many as 50 to 60 million mortgages might be bullet-proof to foreclosure if only the borrower would fight back. That article, written last October, continues to generate responses almost everyday.
It was also enlightening to discover that certain loans, like the 2/28, were designed to fail and insured for multiple times the loan amount making the default more profitable than loan origination.
And along the way, I discovered the absolutely amazing story of how destroying the global economy has and continues to be extremely profitable.
Oh, I also found the money and it’s exactly where you would have guessed—the Caymans.
As my recent columns demonstrate, this was a well-planned scheme by Wall Street, the seeds of which go back more than 20 years, and the mechanics of which are so complicated that no one in the mainstream media can or will connect the dots.
In the days following 9/11, we learned that the purpose for targeting the World Trade Centers was to strike a blow against the American economy, and by extension, the American middle class.
In terms of creating insecurity, it was very effective. Most of the people I talked to weren’t really afraid of being killed in a terrorist attack. They were more apprehensive that the economy could be so badly damaged that it would lead to widespread job losses that would directly touch them and their loved ones.
As it turned out, Al Qaeda didn’t really have the means to carry that out. But, it happened anyway.
In the weeks and months to come, words and phrases like derivative, credit default swap, counter party risk, tranche, mezzanine, and bankruptcy remote special purpose vehicle will all begin to make sense.
Until then, very few loans will be modified and defaults will continue unabated.
Ironically, many of the foreclosing entities have themselves walked away from debt obligations.
Take Morgan Stanley for example. They have a history of regulatory fines and fraudulent activity. They are walking away from mortgages totaling $8 billion on 5 commercial properties they purchased in 2007.
In the meantime, there is mounting evidence that the banks don’t even want the houses and are abandoning them. In Buffalo, according to New York state officials, the problem has reached epidemic proportions. The city sued 37 banks, claiming they were responsible for the deterioration of at least 57 abandoned homes.
It’s All about Credit Default Swaps
While it seems unusual that banks would just walk away from real estate that must still retain some value, the reason is that compared to the pay outs on the credit default swaps, there isn’t any real money to be made.
Until everyone understands that the credit default swaps were the ultimate incentive for securitizing debt, this will continue. Originally intended to protect the investor who buys the mortgage from the bank, because they are unregulated, anyone could buy them.
It would not surprise me to discover that once the details of this are fully understood, the majority of loans securitized over the last few years will be revealed to have been insured for several times the loan amount by insiders who knew that the default rate of the pool would be substantially higher than what they were rated. A lot of people may have an incentive to force a default.
Imagine the temptation of buying a fire insurance policy on your neighbor’s home for 10 times its value. The only way to make money is to hope it burns down.
The good news is that, because they pledged the same securities to multiple investors, they cannot produce evidence of the true party in interest. As homeowners continue to challenge these foreclosures, the pretender lenders might simply show evidence of a default, collect on the swap, and not even bother with foreclosing.
For those who do fight foreclosure, it may turn out to be the only way to get restitution and regain any lost prosperity.
Stay tuned.
George W. Mantor is known as “The Real Estate Professor” for his consumer education efforts including a long-running radio program, monthly workshop series, public appearances, and frequent articles.
During a career dating back to 1978, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property.
Prior to starting his own real estate and mortgage brokerage in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS.
George is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.
The Real Estate Professional includes him in “a directory of the Nation’s outstanding authors, columnists, and speakers. His articles have also recently appeared in Real Estate Finance, The Real Estate Professional, National Real Estate Investor, Broker Agent News, and Realty Times. His blog is http://www.realtown.com/gwmantor/blog.
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