Mortgage Crisis, Good Government from the FDIC

Sheila Bair’s book, Bull By The Horns offers a fascinating view of the mortgage crisis from a lifelong Republican with conservative values and a respect for an effectively regulated market. I highly recommend you read this analysis from the Federal Deposit Insurance Corporation Chairman from 2006 through 2011 but here’s my summary.

Everyone knows that many of the largest banks, mortgage institutions and other financial dealers on Wall Street exploited the lack of regulation, customers, and investors to make windfall profits. We know that these Wall Street players, big and small, all viewed themselves as “Masters of the Universe,” and so fervently believed in a boundless free market, that they exhibited little caution. Yet the details that Bair provides makes the exploitation seem more unjust, immoral, and insane that it was allowed to happen.

These financial wizards made little provisions for a rainy down (the end of the bubble). They took profits for themselves and did little to reinvest in the companies whose health they were responsible to uphold. The CEOs, Presidents, and board members of the banks and financial institutions keep little capital on hand that would have provided more balance to their books. One of Bair’s prescriptions for the future is raising the capital requirements for these institutions. The Masters were able to pass their risk of thee questionable securities, such as credit default swaps, down to investors who were often misinformed about the true value of the security, Moody’s famously rated these virtually worthless swaps at triple A. Bair suggests that banks and others be required to retain a degree of risk through having to absorb a loss of 5 to 10 cents for each dollar of loss that an investor takes on the investment that the bank sold to them.

I maintain my attitude that what many of these bankers did was knowingly fraudulent. The subprime mortgages were predatory lending practices. These bankers sold mortgages with steep payment resets and exorbitant prepayment penalties that trapped the mortgage holder into an endless cycle of needing to renegotiate the terms of their mortgage and pay the bank fees.

I agreed wholeheartedly with Bair’s expectation that as a condition of the bailout/TARP many of these Masters of the Universe would have been forced to resign after leading their financial institutions toward the abyss. Instead those provisions that could have been attached to the bailout were not included. It appears that occurred because of the comfortable relationships that several members of the Bush and Obama Administrations had with the Wall Street crowd. Of course, this was true of Hank Paulson who came from the Goldman Sachs to run the Treasury Department. Unfortunately, it was also true for Obama’s Treasury Secretary former NY Fed Chair Tim Geithner. Bair and Geithner bash heads throughout the book. If one needs to find an antagonist, look no further.

As a government worker it was painful to read about Geithner and some of the other public servants. They forgot about the basic tenet of their position, do the public’s bidding and do good work for the public. Geithner comes off as much more concerned about the Masters of the Universe, the financial institutions, and the creditors holding the bank’s securities than protecting the public’s money. Regulators in the former Office of Thrift Supervision (OTS) worried more about how the news of a certain bank’s bad actions would make them look as regulators than in doing the public’s interest. Finally, the details the book provides regarding the efforts made toward helping the homeowners during the crisis are painful because of how limited the actions were and how frequently members of both administrations showed little concern and compassion for these people.

I’m thrilled to have read the book. I feel more informed. I feel much sadder and angrier than prior because of how little members of the administrations seemed to care about the public that they are in position to represent. Government workers promise to work for the greater good. By doing that we create an improved country and world for all citizens. That requires us to make choices sometimes about who needs our help and protection. Regardless of whether you come from the ranks of the working-class or the elite, as a government worker you make the choice that helps the vast majority of people, not the one that helps the special interests or the group to which you want to get a job in the future. We need to return to the efforts of good government and protect the interests of the majority to make the country and the world a better place. The kind of choices that will enable more people to benefit, to live an improved life. Time to rise up against the Plutocracy. The craven and venal natures of the leaders of the major banks is disgusting at best. The book is a real eye opener and I wish that its message could be put on bumper stickers around the country. It’s time to make a wholesale change among the plutocrats! Damn, time to get back to good government!!!



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