All my life I’ve believed there is no free lunch. Now, I know there is.
The Wall Street bankers ate one on you and me. I hope you enjoyed buying as much as me.
The so-called housing bubble was just a Ponzi scheme. Here’s how it worked in words even I can understand. First you needed a tight inventory for houses on the market, then low interest rates. Then, you needed a new plan. Years ago your bank gave you a mortgage and they held that mortgage until you sold the house, paid the mortgage, or refinanced the loan. Under the new plan the mortgage was sold immediately. These mortgages were packaged into sub-prime bonds. But, there was a problem with that. These sub-prime mortgages were too easy to identify in those bonds. So Wall Street invented a CDO. A collateralized debt obligation. In a CDO no one knew what was in there.
Next you needed the two main bond rating agencies in your pocket. Moody’s and Standard and Poor’s. They were still giving these crap CDO’s an A rating a month before the lid blew off and after 20% of the mortgages in the CDO had defaulted. Everyone at high levels in these two companies should be in jail. No, they got a free lunch.
As a small minority of investors began to see the problems with sub prime mortgages, you need to keep the lid on. So go to some Wall Street firms with sub prime intelligence and get them to issue insurance on the CDO’s and mortgage bonds. Called credit default swaps, for a small insurance premium, you would be paid if the bonds failed. The big seller of credit default swaps, AIG. They got a free lunch. A few Wall Street firms, like Goldman Sachs(no surprise), held bonds and owned swaps.
So, as all of this is blowing and going, Wall Street made billions selling CDO’s around the world. Local banks made millions selling mortgages and mortgage brokers made billions finding suckers to get mortgages, and the employees at the Wall Street firms made millions in bonus money for selling CDO’s. All the the risk was in the hands of the bond holders and with the government(Freddie, Fannie, and FHA).
When Hank Paulson sold Bush on the bailouts(Obama too, he was there remember)he bought all the lunches with your tax dollars. Being an old Goldman guy, he looked after his friends. You and I are still paying for the free lunches. Freddie and Fannie and the FHA are far from done. They will need to keep tapping your tax dollars for years to pay for the carnage they still hold from the bad mortgages. They are essentially landlords for millions of houses. Keeping the grass cut, etc. They are thinking about renting some. They are parceling out the foreclosures to keep from creating a panic. How well does the company that runs the Post Office do in the real estate business. We can only wait for the big expose telling us they are paying a thousand dollars a week to have grass cut.
Your gift to Wall Street is the gift that just keeps giving. They all got the free lunch, but keep coming back for more. And, with the help of your government, you just keep buying. How dumb are you?