“PRUDENT AND LOGICAL FOR THE BANKS THAT SOLD THIS TOXIC WASTE TO BUY IT BACK AND FOR A LOT OF PEOPLE TO GO TO PRISON”
Interest rate ‘freeze’ – the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender, San Francisco Chronicle
Sunday, December 9, 2007New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie’s existing loan losses shot up more than expected. Now, just unveiled Thursday, comes the “freeze,” the brainchild of Treasury Secretary Henry Paulson. . .
. . . The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process. And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies – all the way up to senior management – knew about it.
The true economic crime has plenty of suspects, but the most obvious is allowing a market vehicle that no one properly understood to grow and flourish like a cancer without any oversight–indeed without even so much as a diagnosis.We have a name for this carcinogen now–hedge funds–but still not even the beginning of a treatment. In the absence of cure and after a life of disregard and denial, we can expect the usual in such cases–collapse. * For more in-depth articles by Jim on Business and Economy, check out Opinion-Columns.com