- While New York Governor Eliot Spitzer was paying an 'escort'
$4,300 in a hotel room in Washington, just down the road, George Bush's
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 there's a
BIG difference. The Governor was using his own checkbook. Bush's man Bernanke
was using ours.
- This week, Bernanke's Fed, for the first time in its
history, loaned a selected coterie of banks one-fifth of a trillion dollars
to guarantee these banks' 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 bankers'
bordello: Eliot Spitzer.
- Who are they kidding? Spitzer's lynching and the bankers'
enriching are intimately tied.
- HOW? FOLLOW THE MONEY.
- The press has swallowed Wall Street's line that millions
of US families are about to lose their homes because they bought homes
they couldn't afford or took loans too big for their wallets. Ba-LON-ey.
That's blaming the victim.
- Here's what happened. Since the Bush regime came to power,
a new species of loan became the norm, the 'sub-prime' mortgage and it's
variants including loans with teeny 'introductory' interest rates. From
out of nowhere, a company called 'Countrywide' became America's top mortgage
lender, accounting for one in five home loans, a large chuck of these 'sub-prime's.
- Here's 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 ain't 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 'discount' 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 'sub-prime'. Guess. No
peeking. Here's a hint: 73% of HIGH INCOME Black and Hispanic borrowers
were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned
borrowers aren't 'stupid', they had no choice. They were 'steered'
as it's called in the mortgage sharking business.
- "Steering," sub-prime loans with usurious kickers,
fake inducements to over-borrow, called 'fraudulent conveyance' or 'predatory
lending' 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 "it was OK now to steer'm,
fake'm, charge'm and take'm."
- 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, Bush's
regulators went on the warpath against Spitzer and states attempting to
stop predatory practices. Making an unprecedented use of the legal power
of 'federal pre-emption', Bush-bots ordered the states to NOT enforce their
consumer protection laws.
- Indeed, the feds actually filed a lawsuit to block Spitzer's
investigation of ugly racial mortgage steering. Bush's 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 Citigroup's Citibank
made mortgage usury their major profit centers. They did this through a
bit of financial legerdemain called 'securitization.'
- 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 'tranches' of bonds which were stamped 'AAA' - 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.
Countrywide's top man, Angelo Mozilo, will 'earn' a $77 million buy-out
bonus this year on top of the $656 million - over half a billion dollars
he pulled in from 1998 through 2007.
- BUT THERE WERE RUMBLINGS THAT THE PARTY WOULD SOON BE
- Angry regulators, burned investors and the weight of
millions of homes about to be boarded up were causing the sharks to sink.
Countrywide's 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? That's 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' and got to keep the Grinning's house. There was no 'quid' of
a foreclosure moratorium for the 'pro quo' of public bail-out. Not one
family was 'saved,' but not one banker was left behind.
- Every mortgage sharking operation shot up in value. Mozilo's
Countrywide stock rose 17% in one day. The Citi sheiks saw their company's
stock rise $10 billion in an afternoon.
- And that very same day the bail-out was decided - what
a coinkydink! - the man called "The Sheriff of Wall Street" was
- SPITZER WAS SILENCED.
- Do I believe the banks called Justice and said "Take
him down today!" Naw, that's 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, one was 'Wall
Street Declares War on Spitzer' - made clear to Bush's enforcers at Justice
who their number one target should be. And it wasn't 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
- 'Not 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.'
- Bush, said Spitzer right in the headline: 'was
the 'Predator Lenders' Partner in Crime.' 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
- Spitzer wrote: When 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."
- FALLEN ON HIS OWN GUN
- But now, the Administration can rest assured that this
love story - of Bush and his bankers - will not be told by history at all
''now that the Sheriff of Wall Street has fallen on his own gun.''
- A note on 'Prosecutorial Indiscretion.'
- 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.
I'm not allowed to tell you the prosecutor's name, but I want to mention
he was recently seen shouting: "Florida is Rudi country! Florida is
- Not all crimes lead to federal bust or even public exposure.
It's up to something called 'prosecutorial discretion.'
- Funny thing, this "discretion." 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 - rarely done
in these cases - was made at the 'discretion' of Bush's 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.