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Thursday, August 19th 2010

8:00 AM

A Lesson for the Tea Party About Blame for the Mortgage Crisis


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This article is not just for the Tea Party, but for the Tea Party logic that many have. The Tea Party states that the borrowers are at fault for our mortgage crisis, buying too much house, with too easy terms. The view of the Tea Party is that these people should have known better. I think we need to explore this idea further here.

First of all, there is some blame for some of the toxic loan customers. However, that blame needs to be shelled out carefully. We know that those who didn't speak a lot of English were thoroughly bamboozled. We know that many who did speak English were told that real estate always goes up and that you could refinance. David Lereah, who used to be the head of NAR was on CNBC almost daily pumping up the balloon of real estate appreciation. There was a Wall Street plan here.

So, what about the guy who saw the stack of papers at closing and saw the inflated numbers of his net worth or earnings? Didn't he bear a lot of responsibility? Maybe, and certainly red flags should have come up as the mortgage brokers were in a lie and that was going to be approved by the customer. However, there are mitigating reasons for lowering his blame. First, most people are not familiar with closings. You had real estate and broker people telling these customers that this inflation of numbers was ok because the lenders didn't care anymore.

And of course this was true. The big banks didn't care, and these brokers knew that the banks would take the mortgages. Well, how were the banks able to take ponzi, toxic mortgages that were full of a pack of lies? It is because they had swaps, a form of insurance, on all the loans. With the repeal of Glass-Steagall by Phil Gramm and a 90 to 8 vote of congress in 1999, came the ability of banks to merge with insurance entities.

The breakdown of this barrier allowed banks to insure each other! So, the banks really didn't care whether the loans were good or bad. They packaged them up, got the rating agencies to do what they were told and rated the mortgage bonds AAA, and the banks sold them to unsuspecting investors throughout the world, including to your counties and schools and cities.

So when we go back to determining the blame regarding the ponzi housing scheme, we can assign a small amount of blame to a few folks, but the lion's share of the blame, at least over 80 percent, goes to the planners and facilitators of the scam, the big banks themselves. Since the game was a giant ponzi, which worked until the crash, people have little blame if any and have the right to walk away from an obvious banking scam.

I understand that the no money down people with the oversized houses were arrogant, above you lowly renters who did the right thing, and who suffered the new owners' obnoxious behavior. But when educated people were fearing that if they didn't get on the escalator of rising prices, they would be shut out of the housing market forever, you know that these people had no clue a crash was coming. They had been thoroughly deceived by the banks and even the private Fed with the blessing of government; as Alan Greenspan in February, 2004 advocated that people deal with the lack of affordability by getting adjustable loans.

The government, through the private Fed bank, was in on it. Bush was in on it. None of them said this would cause a crash. But you can bet the bankers knew it would cause a crash. They understood both the psychology and the economics of this bubble. Money changers have always understood both of these attributes of bubbles. This is why there should be no shame in walking away from the ponzi. You may feel you should have known better and made a mistake, but the big bankers were engaged in criminal activity on a scale much larger than Madoff, yet without prosecution.

So, it is important to reign in the Tea Party reckless accusations. Put the blame where it belongs, onto the people who crafted the ponzi. If you are ever to understand the role of the banks properly, you will have to rebuke the Tea Party view or the Tea Party people will have to change their views.


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