Banks should never be forced to give subprime loans.

[g5000]

Part VI

It's going to get really complicated from here. This is usually where the hacks' eyes glaze over. But stick with me. I will keep it as simple as possible.

All right.

First, I will touch on the CRA. The Community Reinvestment Act. This was a law passed during the Carter Administration which required banks to make a certain percentage of their loans to minorities. That's because banks had, up to that time, practiced something called "redlining".

Redlining is the practice of not making loans to negroes who want to live where you don't want them to live. The banks would literally draw red lines on maps where white people did not want any negroes moving in. The banks coordinated to keep negroes in a tight geographical area.

They really screwed the pooch, and so the federal government stepped in with all kinds of equal opportunity laws, one of which was the CRA.

Somehow, the bigots have gotten it into their pointy heads that this 1970s law somehow suddenly caused a subprime bubble 30 years later!

When I am done, you will understand how they got this completely backwards, upside down, and just plain wrong.

But for now you need to know that not one single broker-dealer was subject to the CRA. The CRA had no jurisdiction over the broker-dealers.

I am not kidding. Not Lehman, not Bear Stearns, not Merrill, not Goldman, not any of them.

So much for the CRA...


But before we dig deeper into that, I have to explain what a CDO is, and what the Commodities Futures Modernization Act (FDMA) is.

 

[g5000]

Part VII

Sometime during the late 90s, I forget the exact year, some geniuses at JP Morgan invented the Collateralized Debt Obligation.

That's a mouthful, so we'll call it a CDO from here on.

The CDO is kind of like a MBS, but different.

With an MBS, if borrowers default, all the investors who own pieces of that MBS lose equally.

Not so with a CDO.

Let's stick with the revenue stream idea, and think of it as an actual river of water flowing from borrowers to investors.

As an investor, you can choose what size cup you would like to buy. You can then dip this cup in the river once a month as the borrowers make their payments.

But the price of the cups is inversely proportional to the size of the cup. The smaller the cup, the more expensive it is. But you get to dip your cup in the water first.

The bigger the cup, the cheaper it is, but you have to wait for everyone with smaller cups to dip theirs in the river first.

In more technical terms, those who buy the top "tranches" (slices) earn a smaller interest rate on their investment, while those on the lower tranches earn higher interest on their investment.

Broker-dealers liken a CDO to a pie or a tower, and so they talk slices (tranches). I prefer a stream with cups. Whatever.

The bottom slices are "equity tranches". Then you have senior tranches, and in some cases "super senior" tranches above that.

The bigger the cup you buy, the bigger the risk you are taking, in return for bigger returns.

And remember, folks, you were demanding your 401k money manager to bring you big returns. Which actually meant you were demanding your money manager take big risks.

So...yeah. You were at fault for this mess, too. Oh yes you were.

 

[g5000]

Part VIII

The first CDO was built out of about a billion dollars of corporate loans.

Broker-dealers like to give names to the toys they make, and this first CDO was called "BISTRO". It was an acronym for something, but I can't remember what.

I want to make it very, very clear that there was absolutely nothing evil whatsoever about the original design and intent of CDOs. They are a beautiful thing to behold. Kind of like a Smith & Wesson.

But in the wrong hands...we'll see what happened.

This first CDO, though, strictly blue chip companies. And by "blue chip", I mean companies which could absolutely be depended upon to repay their corporate loans.

Good stuff!

But then they bumped up against a regulatory problem.

You see, federal regulations require lenders to put aside a certain amount of cash (or other commodities as liquid as cash) for every dollar they loan. This is so they can absorb the occasional default on a loan in a big pile of loans such as you would find in a billion dollar security.

Well, JP Morgan didn't like having to tie up some cash which would not be allowed to be put to work making more cash. They hated the idea to have that money just sitting there growing moss in the unlikely event one of these blue chips defaulted.

And that's when the Credit Default Swap (CDS) came riding in on a pale horse. And hell followed with it.

 

[g5000]

Part IX

The Credit Default Swap (CDS).

If you borrow $200,000 to buy a house and it burns down, you still have to pay back that $200,000. And you have no house.

That totally sucks.

So you buy insurance. In fact, for a government backed loan, you are required to buy insurance.

Cool. All is good.

But what about the other end of this deal? You loan $200,000 to someone and then they default. They don't pay you back. FUCK! You're out 200 grand!

And that is what the CDS was invented for. It was insurance a lender could buy to cover the risk of default.


But here is where our politicians really screwed the pooch, ladies and gentlemen. Pay attention.


The inventors, sellers, and buyers of CDS did not want a CDS to be called "insurance". In federal law, there are all kinds of rules surrounding any insurance product. And the free wheeling marketeers HATE regulations. They dodge and evade them as much as possible.

So let's not call a CDS insurance any more, mm-kay? SHHHH! (*wink wink*)

We will call a CDS a...ummm...hmmm...aha! We will call it a "derivative"! Yeah, that's it.


And the politicians went for it! They wrote laws excluding derivatives from pretty much any kind of regulation whatsoever. Even though some prescient wiseass called derivatives "financial weapons of mass destruction".

To draw a red line around derivatives where the banks didn't want negroes regulators to go, we were given the Community Reinvestment Act Commodities Futures Modernization Act (CFMA).

All these brand new derivatives had to be "modernized", you see. Heh.

From section 117 of the CFMA (passed by a GOP Congress, signed into law by a Democratic President):

This Act shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of bucket shops

Now ask yourself why the CFMA had to have a provision in it which exempted Wall Street from state laws which apply to CASINOS and rip-off joints.

Ask yourself why this law which so brazenly stomps on states rights was not protested by Fox News or Libertarians or the ghost of Ronald Reagan.

 

[g5000]

Part X

So the good people at JP Morgan went to the regulators and said, "Hey, what if we buy insurance a CDS from somebody which will cover any losses from defaults? Then will you lift the requirement we set aside some cash to cover defaults?"

And the regulators were like, "Gee, it seems you have found a fascinating and wonderful work-around! Go for it!"

So JP Morgan was able to sell all those cups to all those investors for all that money flowing from all those blue chip companies, and didn't have to set aside any money for a rainy day.

And since they were blue chip companies, that meant the risk of anyone defaulting was incredibly low, and so the people who sold them the insurance policy CDS only charged them a few pennies!

And everyone lived happily ever after.


Oh, wait...

 

[g5000]

Part XI

Now why didn't anybody want to call a CDS what it is? Why didn't they want to call it insurance?

Because insurance has this annoying thing called an "insurable interest" requirement.

This simple regulation prevents homicides, arsons, and all kinds of other nasty things. Man, I hate regulation!


If you own a house, you buy fire insurance against that house because you stand to lose money if it burns down.

If the house of someone across town burns down, you don't suffer a financial loss. This means you do not have an "insurable interest" in that stranger's house.

You cannot buy fire insurance against a stranger's house because of the insurable interest requirement.

The reason you cannot buy insurance against a stranger's house is pretty obvious. There would be a shitload of arsons. A guy could buy insurance against a stranger's house, make a single premium payment, and then torch that stranger's house to the ground and collect the insurance.

If there wasn't an insurable interest requirement for life insurance, we could all insure that black guy down the street and then lynch the shit out of him and make some profit at the same time! U-S-A! U-S-A! U-S-A!

So not all regulations are bad, eh? Some save lives and money.

But imagine if you could buy fire insurance against a stranger's house. Imagine if everyone could.

A $200,000 house could have ten policies against it by strangers. Now if the house burns down, the insurance company isn't out $200,000. It is out $2 million!!!

And that is the problem with CDS. They do not have an insurable interest requirement. They are totally unregulated.

That is why all the players went out of their way to get the regulators not to call a CDS "insurance".

But why would they do that? Isn't that fucking CRAZY!?!

Yep.

But we are talking about people who have moral qualms about lynching for profit, so to speak.

With a CDS, a person could bet against your mortgage burning down. Not kidding.

Now think about that.

If you are an arsonist, what's a sure way to guarantee a bunch of mortgages are going to burn to the ground?

You lend money to people you know can't possibly make the payments. Then you build a CDO out of those mortgages. Then you build a synthetic CDO on top of that toxic CDO.

But since there isn't even an insurable interest requirement for CDS, you can go out and find toxic mortgages which you didn't even make, and pack them into your synthetic CDO!

Then you sell the tranches for that synthetic CDO to some mushroom investors who you don't tell you built this whole firetrap. They have no idea you are on the other side of the bet, because you used a broker-dealer at Goldman Sachs as your cutout.

Then you throw the match and collect the insurance.

And that, ladies and gentlemen, is exactly what ABACUS 2007 AC-1 was all about.

FMI: Factbox: How Goldman's ABACUS deal worked | Reuters

 

[g5000]

Part XII

I got a little ahead of myself in that last installment. Ahem. Sorry about that.


All right. JP Morgan needed someone to sell them a CDS. So they went to the biggest insurance company on Earth.

American International Group. Which I shall henceforth call "AIG".

AIG took a look at BISTRO, and they said to themselves, "There's no way any of these blue chip companies will default on their loans! No fricking way! So whatever we charge JP Morgan for insuring (*cough*) BISTRO, it's all free money!"

AIG was feeling giddy, and only charged JP Morgan peanuts for the CDS.

And everyone lived happily ever after.


Oh, wait...


Here's a funny thing.

Remember that regulation which said lenders had to set aside some cash in the event someone in the security defaulted?

Remember how JP Morgan got around that by buying a CDS?

Yeah. So then AIG sold them a CDS.

But since a CDS is a totally unregulated derivative, and not insurance, there was no requirement for AIG to set aside some cash in the event someone in BISTRO defaulted!

Presto!

So guess what AIG did after it sold the CDS to JP Morgan?

They didn't set aside any cash in the even JP Morgan would someday come to collect on a default. Nothing. Nada. Zip. Zilch.

I shit you not.

This is what became known in the derivatives world as "we have eliminated risk from the lending business!"

I wish I was joking. I really do.

 

[g5000]

Part XIII

Well, once word got out that some magicians had managed to eliminate risk from lending money to borrowers, the world began beating a path to AIG's door.

And once word about CDOs got out, and that you didn't have to set aside any cash for defaults so long as you bought a CDS from AIG, then the fucking world was set on fire with a feeding frenzy of fees.

The broker-dealers began securitizing the shit out of loans so they could build CDOs which they could then sell to investors and sop up as much as that $70,000,000,000,000 as they could.

"We have found a way to transfer seventy fucking trillion dollars to borrowers without any risk! Let's par-tay!"

Crazy, right?

Here's the problem.

There are only so many "blue chip" borrowers on the planet. And they can only borrow so much money. They are not capable of borrowing anything even close to $70 trillion.

"We are just going to have to lower our standards, folks, so we can get us even MOAR middle man fees!"

And that is just what all the broker-dealers did.

Loans were the fodder for building CDOs, and CDOs were the way to make fees. So they needed to keep the CDO-building industry going. In order to keep the industry going after all the blue chip borrowers were tapped, they lowered their borrowing standards.

Here's the food chain:

Borrower > broker > broker-dealer > investor

Now how smart do you have to be if you are a broker and a broker-dealer (Lehman) gives you a pile a cash and tells you to get someone to borrow it, in exchange for a broker's fee?

"Lend it to anyone you can find!"

Why, you don't have to be very smart at all. You could be a bartender one day, and a real estate broker the next! U-S-A! U-S-A! U-S-A!

In fact, Lehman Brothers, in order to sustain their CDO building empire, bought their own chain of brokers to feed the pipeline. They were shoveling cash from their mushroom investors into the hands of these stumbling fucks who in turn were throwing it at anyone who could fog a mirror.

It had fuck-all to do with the CRA. That's why when Dick Fuld was asked by an idiot Republican who had clearly been drinking Fox News's piss how much the CRA had had to do with the collapse of Lehman Brothers, the goon answered, "De minimus."

 

[g5000]

Part XIV

Let's circle back to interest rates, and then back to the GSEs.

After the dot com bubble popped, and 9/11 happened, our country suffered a recession. As it turned out, the only business sector which was performing well during that recession was the real estate market. And so, in order to stimulate the economy, a couple things happened.

First, the Federal Reserve (the "Fed") lowered interest rates. They did this to make it easier to gain access to that $70 trillion.

During recessions, people don't move money around as much as they do during boom times. Some people focus all their attention on how much money is in circulation. They get all in a tizzy whenever the Fed "prints money", but they are ignorant of the velocity at which that money moves around.

When the Fed lowers interest rates, it is trying to speed up the velocity of money. It is trying to get you to hold onto money for less time and get it moving around. And during that post dot com slash 9/11 recession, the Fed wanted to give a boost to the housing market.

So that happened.

Now about those GSEs some hacks blame for everything (when they aren't blaming negroes and the CRA).

As I mentioned somewhere at the top of this series of posts, the GSEs totally dominated the secondary mortgage market for several decades. "Secondary mortgage market" is just another way of saying they bought the mortgage paper from lenders, bundled them up, and sold them on to investors.

For decades, the GSEs made up about 95 percent of the secondary mortgage market. Now that's what I call domination!

Wall Street was jealous. They wanted in on the action. Then someone invented the CDO and the CDS, and suddenly Wall Street saw its opening.

We have to talk about regulations again. Sorry.

Because they were backed by the government, the GSEs were not allowed to make risky loans. They had to make good loans to good borrowers. Really, really boring loans. Serious yawners. The secondary mortgage market was boooooooriiiinnnngggggg for decades.

But then along came the derivatives. Dunh-dunh-dunnnnnnnnh! "We've removed all risk from the mortgage market! We can lend money to ANYBODY!"

As the brokers and broker-dealers ran out of good borrowers with good loans to stuff into the hotcake CDOs, they began lowering their standards. They began deliberately seeking out higher risk borrowers.

A higher risk borrower pays a higher interest rate because they are a risk. Higher interest rate = MOAR profits. Yay!

A loan to a good risk borrower is called a prime loan. A loan to a lower or bad risk borrower is called a "subprime (or sub-prime) loan".

Now, in the minds of hacks, a "subprime loan" and "a loan to a negro" are the same thing. They will deny it, but that's exactly what they picture in their heads.

They will say, "No, it means a loan to a 'low income' person!", pretending they don't really mean negroes.

As for subprime being a loan to a low income person isn't even true, either. Not necessarily. I will explain.

I have a credit score of 815. I'm not bragging, I am using this as an illustration.

Because I have a credit score of 815, does that mean I can borrow a billion dollars?

Nope. I'm not a casino owner on this third marriage who runs a fraudulent university. I'm just a middle class schmoe.

I can safely borrow a few hundred thousand dollars, and be considered a good risk. Therefore, I would get a prime loan.

But what if I borrowed a million dollars? I am a pretty big risk for a million dollars. So if you loaned me a million dollars, you would have to do it with a subprime loan. You would have to charge me a much higher interest rate than if I borrowed $300,000.

And that is exactly what most subprime loans were. They weren't loans to negroes, they were loans to middle class people biting off WAY more than they could chew. And they used those loans to not only buy McMansions, they then turned around and took out Home Equity Lines of Credit (HELOC) to buy SUVs, boats, motorcycles, Disney vacations, hookers and blow.

 

[evenflow1969]

Banks make their money by lending money, charging a legal amount interest, and getting paid back. They like to lend money. However, they do not like to lend money to people who look like a bad investment on paper. It's nothing personal. We need to repeal Jimmy Carter's Community Reinvestment Act. Let the banks run their business as a business and stop forcing them to give out subprime loans. That is what created the housing bubble, which finally burst and caused a meltdown. Too many people were taking out loans they shouldn't be taking out and that should not be offered to them. This caused a bubble in housing prices, which spawned more housing market activity and caused it all to swell until it finally burst. Carter, Clinton, and even Bush were guilty. Deregulate the banks and let them worry about the bottom line instead of forcing them to follow a bad business model for socio-political reasons. We will all benefit from it. Fanny Mae and Freddie Mac should be repealed as well.

The stupidity of you idiots never ceases to amaze!

 

[g5000]

Part XV

Wall Street began moving into the subprime business in a large way in the early Oughts. This really bit into Fanny and Freddy's business, because the GSEs were restricted to making prime loans while Wall Street was going gangbusters with derivatives and subprime loans.

So then the GSEs started moving into the subprime business and buying CDS. They were the followers, not the leaders.

Nevertheless, the GSEs lost their domination of the secondary mortgage market. By 2005, their market share had shrunk to something like 30 percent.

Suddenly, the secondary mortgage market wasn't boring any more. It was flashy. It was the shit. It was hookers and blow for everyone!

In order to steal more market share from the GSEs, there had to be a transfer of ownership of our politicians. The GSEs had totally owned them for decades, but then Wall Street began donating large sums to EVERY politician. Not just Republicans. After all, Chuck Schumer is the Senior Senator from New York, which is where Wall Street is, and so he raked in YUGE sums from the broker-dealers, too.

Wall Street gave our politicians a narrative. A narrative that, if you were paying attention, made our politicians look schizophrenic.

The narrative we were suddenly given around 2004 or so was that the GSE portfolios were getting too big. They were making too many loans. Our Republican President at the time said their portfolio posed a "systemic risk", and they needed to slow down. The Democrats, whose turn it was to wear the Party of No hat, disagreed.

In some circles, this Republican President is portrayed as a hero. "He tried to stop the runaway train, but that fag Barney Frank got in his way!"

It's a tidy story, but it is total bullshit.

The part about Frank wanting the train to keep going is true, but the part about the President trying to stop the train is total bullshit.

You see, that Republican President had never been owned by the GSEs. And while he was trying to rein them in, he was very busy greasing the wheels of that train for Wall Street.

Read this post and see if this guy strikes you as someone who felt we needed to stop this silly business of lending to negroes: President Bush Calls for Expanding Opportunities for Home Ownership

"We certainly don't want there to be a fine print preventing people from owning their home. We can change the print, and we've got to."

The Republican President did everything he could to relax the underwriting laws of the Universe so Wall Street could keep on building their CDOs and reaping their fees.

Here's one of the worst deregulations:
Final Rule Alternative Net Capital Requirements for Broker-Dealers That Are Part of Consolidated Supervised Entities Rel. No. 34-49830 June 8 2004

The Commission is amending Rule 15c3-12 (the “net capital rule”) under the Securities Exchange Act of 1934 (the “Exchange Act”) to establish a voluntary, alternative method of computing net capital for certain broker-dealers.

Bush's SEC voted unanimously in 2004 to waive the net capital rule for the 5 biggest broker-dealers. That waiver led directly to the demise of those broker-dealers.

All five of the broker-dealers who were given that extra special treatment by the SEC no longer exist as independent companies or converted into bank holding companies so they could be bailed out.

Bear Stearns was the first to go under. Then Lehman Brothers went under. Then Merrill Lynch went under.

Goldman Sachs and Morgan Stanley converted to bank holding companies so they could receive bailout money. Goldman was also bailed out by former Goldman Sachs CEO, Hank Paulson, who was Bush's Secretary of Treasury. Goldman Sachs received 100 cents on the dollar for their CDS's from AIG.

 

[g5000]

Part XVI

Almost there. I can see the light at the end of the tunnel. There are a few more culprits who need to be called out.

That's why we need to circle back to AIG now.

Remember when AIG sold that first CDS to JP Morgan for the BISTRO CDO? If you understand that sentence, then I congratulate you for sticking it out this far. Well done!

Anyway, AIG didn't set any money aside in case JP Morgan came calling to collect on that insurance policy in the event a blue chip company defaulted.

And they continued to not set money aside as the CDS market exploded! They thought the universe would end before they would ever see the day when a CDO imploded.

No, literally. They actually believed the actual universe would end before such a thing would happen.

And if every CDO was of the same Smith & Wesson quality as that first one (BISTRO), they would have been right.

And everyone would have lived happily ever after.

But they weren't the same quality. Because Wall Street was making "toxic loans" to anyone who could draw a breath, and that is what was ending up in CDOs. A "toxic loan" is one in which the broker making the loan knew the borrower didn't have a chance in hell of ever paying off their mortgage.

I mentioned earlier that most of the subprime loans were made to middle class borrowers. However, it is definitely true that subprime loans were also being made to "low income borrowers".

The thing is, the hacks would have you believe the broker-dealers were FORCED to make those loans to the negroes. But now you know the opposite is true. The banks were forcing themselves on the lower income people.

This actually happened: Poor people would be attending church, and suddenly their preacher would introduce a mortgage broker and tell them Jesus want the congregation to listen to this motherfucker and Jesus was going to make them all rich. I kid you not.

Let me ask you something. If you have two people sitting at a table with a mountain of forms, and one of those people was poorly educated in an urban shithole school and was trapped in a redline area earning less than a survival wage, and the other person worked for an institution with CENTURIES of hard learned lessons about risk and lending, which one is the most culpable when that loan inevitably defaults?

That's right. The lender. That's why these loans were called "predatory loans".

Sure, the borrower should have known there was no way to make a $1400 a month payment on a less than subsistence wage.

But you see, good old Bush said we could and should "change the fine print". Then presto! Your monthly payment has just magically dropped to $300!

Whaaaaaat!?!

 

[g5000]

Part XVII

The subprime borrowers were given a leg up by Wall Street. Actually, it was an ARM up. Nyuk-nyuk-nyuk.

Adjustable Rate Mortgage. ARM. You start with a low, low monthly payment. After three or five years, your mortgage "resets", and suddenly your monthly payment skyrockets!

Just how predatory were these loans? We'll have to do some math. I'll try to keep it as simple as possible.

Let's say you borrow $200,000.

Every monthly payment you make on a mortgage pays a little of the principal (the original amount you borrowed), and a little of the interest. After 30 years, you are all paid off.

For a $200,000 loan, that works out to about $1400 a month, give or take.

Let's say the principal is about $500 of that monthly payment. Most of your monthly payment for the first several years is interest.

If you get an ARM, and your monthly payment is only $300, then you aren't even paying down the principal!

You are short $200. You know what the holder of that paper does? They roll that missing $200 into the balance you owe.

So after your first monthly payment, your balance is now $200,200. After your second monthly payment, your balance is $200,400. The amount you owe is actually going UP!

After three years, when your mortgage resets, your new balance is $272,000 instead of the original $200,000. So now your monthly payment shoots up from $300 to $1600 a month instead of $1400 a month.

This is called a "negative amortization" loan, and that is exactly what millions of subprime borrowers were tricked into.

On a below subsistence income, you cannot afford the new $1600 a month payment. So your only choice is to either refinance (right back into ANOTHER predatory loan) or sell your house.

 

[g5000]

Part XVIII

Certain investors are required by their by-laws to only invest in the very safest investments. Investments are rated by their risk. The very best risks are rated AAA. These ratings are assigned by "ratings agencies". Standard & Poor's, Fitch, and Moody's being the most well known in the US.

These ratings agencies are paid by the financial institutions whose products they rate. Conflict of interest, anyone?

Public employee pension funds are required to invest in AAA investments.

The BISTRO CDO was rated AAA because it was made of loans to blue chip companies and because it was insured by a CDS.

In the beginning, most of the measurement of risk was weighted by the quality of the borrowers. But after the invention of the CDS, the broker-dealers and the investors begin to delude themselves that risk no longer existed in CDOs.

And remember, AIG believed this, too, and so they were not setting aside any cash for a rainy day.

That is, until December 2006.

CDS were sold by the financial products division of AIG. Thus it was called AIG-FP.

One day, two guys working at AIG-FP began to wonder how it was possible all these millions and millions and millions of loans were being made all over the globe without any risk.

They were aware that subprime loans were on the rise, but they had assumed the brokers and broker-dealers had some self control. The guys at AIG assumed only about 5 percent of the loans in all those CDOs they were insuring were subprime.

But they decided, just in case, to take a close look at all those CDOs and see what was in them.

And that's when their hair and teeth fell out. They discovered that of the new CDOs being cranked out at that time, 90 PERCENT WERE SUBPRIME. And not just subprime, but fucking more toxic than ground zero at Hiroshima on August 6, 1945.

Those two guys ran to their boss, and he didn't want to believe them. But when you have two bald toothless guys dribbling on your desk and slashing their wrists, you think to yourself, "Maybe I should listen to these guys."

So he did. And he believed them.

That's why in December 2006, AIG announced it would no longer issue credit default swaps.

And then they tried to convince themselves they had stopped in time, seeing as how they had not put a cent aside for a rainy day.

But boy oh boy, were they wrong. Wrong as wrong could be. They were way, way, way too late.

Coincidentally (yeah, sure), that is the same time when Hank Paulson quit his job as Goldman's CEO and went to work for President Bush as Treasury Secretary.

 

[evenflow1969]

Bill Clinton weaponized the Carter Community Reinvestment Act and brought on the economic collapse at the end of the George Bush Presidency. Bush tried to rein it in but the criminal homosexual Barney Frank called him a Raaaacist and assured us that Fannie Mae and Freddie Mac were fully solvent, so Bush folded and a couple of years later Fannie Mae and Freddie Mac collapsed.

Clinton's thinking was that he could not raise taxes any more---for Reparations---so he used the Community Reinvestment Act to force banks to make loans to people who could not pay them back---as a hidden tax on the shareholders of banks. Shrewd but the financial consequences from this pre-Socialist Power Grab were disastrous.

The Scam should have been the biggest scandal since Watergate, but the Pravda-like Media is completely in the pocket of the Democratic Party controlled Deep State.

We are in the midst of the most corrupt period in the history of this Country. 2020 will say if it can be brought under control. It is not likely.

But, we can console ourselves in the knowledge that it happens to all civilizations--corruption, alien invasion, pussification--ultimately decay it from within just as we are witnessing every day right now.....in spite of the valiant efforts of Don Trump.

Sanctuary Cities? Are you kidding? Mayors would have gone to jail in any other period of our History, but no, not now, for Democrats have determined that they can't win---that Socialism cannot prevail---without a complete change of voters---into a more needy demographic, one that needs the Big Government Handouts.

American Culture as we have known it for about 220 years is going going---gone. The Media is lost, the Colleges are lost. The major cities are rotting. The Heartland will stay strong for a few more decades, but the American Culture---the greatest so far in Human History is about gone.

Sad!

The stupidity of you idiots never ceases to amaze!

 

[g5000]

Part XIX

The ratings agencies people had no idea how to comprehend CDOs and how safe they were. The broker-dealers would call them in and say, "Trust us! Look, here's a really complicated calculus formula we use, and it says everything is fine."

Then the ratings agencies people would say to themselves, "Well if we don't give these CDOs a AAA rating, then those firms will go somewhere else and we will lose the fees."

So the ratings agencies gave these towers of toxicity AAA ratings, and because of that, public employee pension funds bought them, insurance companies bought them, and college endowments bought them.

Here's something not too many people know: Insurance companies don't make their profits from premiums. There is actually a very thin margin between what they receive in premiums and what they pay out to hospitals. They take that thin margin and invest it in CDOs and stocks and bonds and shit.

So when these CDOs blew up, all those public employee funds and all those colleges and all those insurance companies lost their asses.

And that is a big reason there was a skyrocketing rise in state and local taxes, college tuition, and insurance.

There is some poetry in all this, though.

One of the biggest cheerleaders in the deregulation of derivatives was Larry Summers.

Larry Summers was President Clinton's Treasury Secretary.

After serving Clinton, Summers went on to manage Harvard's college endowment fund. He drank his own derivatives bongwater and lost $2 billion of Harvard's money.

Oh, here's the funny thing about that calculus formula the financial institutions were using to measure risk: It assumed housing prices would always rise. If you plugged a negative number into it, it imploded.

Just like the world economy did.

 

[g5000]

Part XX

Three years have gone by and people are finding their mortgages have reset and they can't afford the new monthly payment. So they try to refinance, but millions of mortgages have reset at the same time, and the risk of rolling all that increased principal is too great, and they are turned down.

So the real estate market is suddenly flooded with houses. When you increase supply, prices drop.

Oh, shit!

You borrowed $200,000 but you were in a negative amortization loan and so now you owe $272,000. House prices are dropping, and you can't even sell your house for the original amount of $200,000!

So what do you do?

You foreclose, that's what you do. You default and walk away.


You stop making monthly payments. You and millions of other borrowers stop paying.

The revenue stream starts drying up.

Uh oh.

Imagine all those investors standing by the river with their cups.

The ones with the little cups get to go first.

The stream is drying up. The people with the bigger cups find that by the time their turn comes around, there's no more water in the stream.

It's all gone.

No worries! We bought a CDS! Yay! Get AIG on the phone.

Uh oh.

AIG doesn't have any money to pay off those policies they sold.

SAY WHAT!?!?!

AIG was taking all that "free money" from the investors and now they can't meet their obligations.

Holy shit!

And that's how AIG went belly up and had to be bailed out by us taxpayers.

Good old Hank Paulson, formerly of Goldman Sachs, made sure Goldman Sachs received 100 cents on the dollar for their CDS and did not take a loss.

Not everyone was that lucky to have a man on the inside looking out for them. A lot of pension funds lost their asses. Firemen, policemen, teachers. They all ate the big one.

 

[g5000]

Part XXI

By the end, loans were being made to people who couldn't even make their first mortgage payment.

How is this possible?

Because the people handing the borrowers the money had "no skin in the game". Before the ink was even dry on the mortgage note, they had passed it up the food chain to the next sucker.

At the end of the line were the public employee pensions, municipalities, college endowment funds, Saudi princes, and you and your pathetic little 401k.

Your money manager had been sold a bill of goods. Toxic waste that Moody's and the broker-dealer had assured him were AAA. His head was fogged by hookers and blow, and he blew it.

So now that CDOs were toxic from top to bottom, even the investors with little tiny cups were finding the river was as dry as Hillary's vag.

Bummer.

 

[g5000]

Appendix A

So here's the worst part.

After AIG discovered 90 percent of the loans in CDOs were toxic, and announced to the world they were no longer issuing CDS, then everyone woke up and stopped pushing bad loans on homeless people, right?

Nope.

In fact, the broker-dealers started drinking their own bongwater. They took over the business of selling CDS to each other.

I wish I was lying. I wish I was making this up.

Now, some of the players knew this was all going to blow up. They called it a "house of cards". They knew damned well they were ripping the faces off their clients.

And they didn't care.

These bastards committed outright fraud. And not one of them went to jail.

Let me give you an example.

ABACUS 2007 AC-1.

Note the date on that towering pile of horseshit is 2007. After AIG revealed to Wall Street the gig was up.

There's this guy. John Paulson. Not Hank Paulson, SecTreas. John Paulson, hedge fund manager.

John Paulson approached Goldman Sachs with an idea for a fraud he wanted to perpetrate. And Goldman went along with it.

What John Paulson did was construct a CDO. He was an arsonist. He constructed that CDO out of toxic loans. He KNEW those loans were going to burn down. He knew those loans were firetraps.

They got this CDO built and rated as AAA by the ratings agencies, and then Goldman sold the cups to this revenue stream of pure sewage to investors. 401k money managers, pension funds, you get the picture.

Then Paulson bought CDS against those toxic loans.

So Paulson and Goldman fucked everybody both coming and going. They profited off selling the cups to the investors, and they profited off all those mortgages burning down.

And that, ladies and gentlemen, is why Credit Default Swaps need to be regulated like insurance. That, boys and girls, is why CDS need to have an insurable interest requirement.

But guess what?


To this day, CDS are not regulated like insurance. To this day, CDS do not have an insurable interest requirement.


And another thing. I know the names of everyone involved in that ABACUS crime. And so does the federal government. And not one of them has gone to jail.

One of the small fish was put on trial, and you know what the jury decided? They decided the guy should be in jail, but felt it would be unfair to put him in jail while his bosses went free.

So they let him go.

I shit you not.

 

[g5000]

When every other house in your white middle class neighborhood was in foreclosure, did you look at your neighbor and say to yourself, "Gee, I had no idea Biff was a negro!"?

Only a willfully blind fool buys the total bullshit that the CRA was to blame for the crash.