Spitzer & the mortgage crisis: linked?

I've got five bucks Euros (the bet should have value, at least) that this story gets virtually no play in the national, mainstream media.

Noted journalist & author Greg Palast has a take on deposed New York Governor Eliot Spitzer that's getting virtually no play at all; the short of it is that Spitzer's fall and the mortgage crisis are directly linked. (Two of Palast's books are well-known - Armed Madhouse: From Baghdad to New Orleans--Sordid Secrets and Strange Tales of a White House Gone Wild and The Best Democracy Money Can Buy; the former is sitting on one of my bookshelves, waiting for me to read it.)

His latest column, entitled Eliot's Mess: The $200 billion bail-out for predator banks and Spitzer charges are intimately linked is on his Website and appears in today's Baltimore Chronicle. Some excerpts (my comments follow):

While New York Governor Eliot Spitzer was paying an "escort" $4,300 in a hotel room in Washington, just down the road, George Bush's new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there's a BIG difference. The governor was using his own checkbook. Bush's man Bernanke was using ours.

This week, Bernanke's Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks' mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers' bordello: Eliot Spitzer.

Who are they kidding? Spitzer's lynching and the bankers' enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street's line that millions of U.S. families are about to lose their homes because they bought homes they couldn't afford or took loans too big for their wallets. Ba-LON-ey. That's blaming the victim.

Here's what happened. Since the Bush regime came to power, a new species of loan became the norm, the "sub-prime" mortgage and it's variants including loans with teeny "introductory" interest rates. From out of nowhere, a company called Countrywide became America's top mortgage lender, accounting for one in five home loans, a large chunk of these "sub-prime."

Here's how it worked: The Grinning Family, with U.S. average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain't worth a can of Spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the "discount" they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.

Now, what kind of American is "sub-prime"? Guess. No peeking. Here's a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans, versus 17% of similar-income Whites. Dark-skinned borrowers aren't stupid – they had no choice. They were "steered," as it's called in the mortgage sharking business.

"Steering," sub-prime loans with usurious kickers, fake inducements to over-borrow, called "fraudulent conveyance" or "predatory lending" under U.S. law, were almost completely forbidden in the olden days (Clinton administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer'm, fake'm, charge'm and take'm.

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

[Snip]

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington hotel room. He had just finished signing these words for the Washington Post about predatory loans:

"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which he federal government was turning a blind eye."

Bush, said Spitzer right in the headline, was the "Predator Lenders' Partner in Crime." The president, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, "When history tells the story of the sub-prime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably."

I really wonder when the American people (or at least the moderates, who in recent history are largely determining the outcome of elections) will every truly "get it," and by that I mean that Republicans are so anti-government, it makes little sense to put them in charge of something they are determined to minimize and dismantle at every opportunity.

President Reagan, whose debilitating, deliberate oversimplification of our federal government, "Government is the problem," or the closely related and ever popular "The nine most terrifying words of the federal government are 'I'm from the government, and I'm here to help,'" have really come home to roost during Dubya's administration run amok.

In the last 25-30 years, just about every industry that has been deregulated has done two things: it has enriched the companies via Wall St. (and of course their government-sponsored backers), and it has screwed the consumer. A few examples:

1. The Airline Industry (Actually, President Carter deregulated them, I know, and that has proven disastrous on a number of fronts, so Repubes get a pass here. But, I don't mind bringing up in the spirit of partisanship that Reagan fired the air traffic controllers, and this idiotic and drastic decision's effects are still felt today. Am I the only one who finds it ironic that one of Washington, D.C.'s airports is named after him? But, I digress.)

2. Cable TV - Quickly now, this is not a trick question - has your cable bill gone down or up in the past 15 years? If you are one of the few who have realized a decrease for the same services, then run, don't walk, to your local gas station or convenience store and buy a lottery ticket.

3. The Power Industry - I've got one word - Enron. Anyone remember the faux California Energy Crisis? (I never tire of reminding people that Kenneth Lay's ties to Bush were indeed very close - he donated $500k to Bush's first coronation inaugural ball. As for Big Coal and Big Oil, forget it - their respective claws are dug so deep into our political system, and in these two cases, the Republican Party, the full extent may never be known.

4. The Telecommunications Industry - fewer and fewer telecomms now own more and more. I'm yet to read an adequate explanation as to why this is good for anyone, except for rich corporate investors. Hey, look at the bright side, though - pretty soon there will be one cell phone company left, and one cable news channel, Fox News.

I remember in years' past, when the government used to break up monopolies, while actually giving a damn about the American consumer (what a concept!). The break-up of the Bell System (finally took place under Reagan, but the initial lawsuits began in the 1970s) and the government's case vs. Microsoft for its monopolistic practices are the two most notorious examples of how these high-profile cases in the end benefited consumers.

And that brings us back to the mortgage industry. I wonder when this crisis finally hits bottom (which, evidence says, has not happened yet) if the true story will every come out. I firmly believe that predatory business practices and piss-poor government regulation are a pretty big part of the problem, exacerbated by the "hands off" approach by the Bush administration, as its wont to do in just about any federal regulatory situation, except when it can line the pockets of its donors.

Government regulation and intervention are both not always the best course of action, but they can often protect the consumer.