Eliot's Mess and the $200 Million Bailout
 
Resent-Date: Sat, 15 Mar 2008 12:37:53 -0500 (CDT)


The $200 billion bail-out for predator banks and Spitzer charges
are intimately linked

By Greg Palast Reporting for Air America Radiobs Clout

Listen to Palast on Clout at www.GregPalast.com

While New York Governor Eliot Spitzer was paying an bescortb $4,300
in a hotel room in Washington, just down the road, George Bushbs
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 therebs a BIG difference.
The Governor was using his own checkbook. Bushbs man Bernanke was
using ours.

This week, Bernankebs Fed, for the first time in its history, loaned
a selected coterie of banks one-fifth of a trillion dollars to
guarantee these banksb 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 bankersb
bordello: Eliot Spitzer.

Who are they kidding? Spitzerbs lynching and the bankersb enriching
are intimately tied.

How? Follow the money.

The press has swallowed Wall Streetbs line that millions of US
families are about to lose their homes because they bought homes
they couldnbt afford or took loans too big for their wallets.
Ba-LON-ey. Thatbs blaming the victim.

Herebs what happened. Since the Bush regime came to power, a new
species of loan became the norm, the bsub-primeb mortgage and itbs
variants including loans with teeny bintroductoryb interest rates.
From out of nowhere, a company called bCountrywideb became Americabs
top mortgage lender, accounting for one in five home loans, a large
chuck of these bsub-prime.b

Herebs how it worked: The Grinning Family, with US 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 ainbt 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 bdiscountb 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 bsub-prime.b Guess. No peeking. Herebs
a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given
sub-prime loans versus 17% of similar-income Whites. Dark-skinned
borrowers arenbt stupid b they had no choice. They were bsteeredb
as itbs called in the mortgage sharking business.

bSteering,b sub-prime loans with usurious kickers, fake inducements
to over-borrow, called bfraudulent conveyanceb or bpredatory lendingb
under US 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 b it was OK now to steerbm, fakebm,
chargebm and takebm.

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.

Instead of regulating the banks that had run amok, Bushbs regulators
went on the warpath against Spitzer and states attempting to stop
predatory practices. Making an unprecedented use of the legal power
of bfederal pre-emption,b Bush-bots ordered the states to NOT enforce
their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzerbs
investigation of ugly racial mortgage steering. Bushbs banking
buddies were especially steamed that Spitzer hammered bank practices
across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory
enablers in the investment banking community. Behind Countrywide
was the Mother Shark, its funder and now owner, Bank of America.
Others joined the sharkfest: Goldman Sachs, Merrill Lynch and
Citigroupbs Citibank made mortgage usury their major profit centers.
They did this through a bit of financial legerdemain called
bsecuritization.b

What that means is that they took a bunch of junk mortgages, like
the Grinnings, loans about to go down the toilet and re-packaged
them into btranchesb of bonds which were stamped bAAAb - top grade
- by bond rating agencies. These gold-painted turds were sold as
sparkling safe investments to US school district pension funds and
town governments in Finland (really).

When the housing bubble burst and the paint flaked off, investors
were left with the poop and the bankers were left with bonuses.
Countrywidebs top man, Angelo Mozilo, will bearnb a $77 million
buy-out bonus this year on top of the $656 million - over half a
billion dollars b he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry
regulators, burned investors and the weight of millions of homes
about to be boarded up were causing the sharks to sink. Countrywidebs
stock was down 50%, and Citigroup was off 38%, not pleasing to the
Gulf sheiks who now control its biggest share blocks.

Then, on Wednesday of this week, the unthinkable happened. Carlyle
Capital went bankrupt. Who? Thatbs Carlyle as in Carlyle Group.
James Baker, Senior Counsel. Notable partners, former and past:
George Bush, the Bin Laden family and more dictators, potentates,
pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion
on the poor little suffering bankers. They got the public treasure
b and got to keep the Grinningbs house. There was no bquidb of a
foreclosure moratorium for the bpro quob of public bail-out. Not
one family was saved b but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilobs
Countrywide stock rose 17% in one day. The Citi sheiks saw their
companybs stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided b what a coinkydink!
b the man called, bThe Sheriff of Wall Streetb was cuffed. Spitzer
was silenced.

Do I believe the banks called Justice and said, bTake him down
today!b Naw, thatbs not how the system works. But the big players
knew that unless Spitzer was taken out, he would create enough
ruckus to spoil the party. Headlines in the financial press b one
was bWall Street Declares War on Spitzerb - made clear to Bushbs
enforcers at Justice who their number one target should be. And it
wasnbt Bin Laden.

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:

bNot 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.b

Bush, said Spitzer right in the headline, was the bPredator Lendersb
Partner in Crime.b 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, bWhen history tells the story of the subprime lending
crisis and recounts its devastating effects on the lives of so many
innocent homeowners the Bush administration will not be judged
favorably.b

But now, the Administration can rest assured that this love story
b of Bush and his bankers - will not be told by history at all b
now that the Sheriff of Wall Street has fallen on his own gun.

A note on bProsecutorial Indiscretion.b

Back in the day when I was an investigator of racketeers for
government, the federal prosecutor I was assisting was deciding
whether to launch a case based on his negotiations for airtime with
60 Minutes. Ibm not allowed to tell you the prosecutorbs name, but
I want to mention he was recently seen shouting, bFlorida is Rudi
country! Florida is Rudi country!b

Not all crimes lead to federal bust or even public exposure. Itbs
up to something called bprosecutorial discretion.b

Funny thing, this bdiscretion.b For example, Senator David Vitter,
Republican of Louisiana, paid Washington DC prostitutes to put him
diapers (ewww!), yet the Senator was not exposed by the US prosecutors
busting the pimp-ring that pampered him.

Naming and shaming and ruining Spitzer b rarely done in these cases
- was made at the bdiscretionb of Bushbs Justice Department.

Or maybe we should say, 'indiscretion.'

************ Greg Palast, former investigator of financial fraud,
is the author of the New York Times bestsellers Armed Madhouse and
The Best Democracy Money Can Buy.

Hear The Palast Report weekly on Air America Radiobs Clout.

And next Wednesday March 19, join Palast and Clout host Richard
Greene on a dinner cruise on the Potomac River. For more information
click here.

And this Sunday, at noon, on WABC-TV New York, catch Amy Goodman,
Les Payne and Greg Palast on Like It Is with Gil Noble.