Vail Valley Voices: Congressional inquisition
Vail, CO, Colorado
On April 27, I was astonished by the abusive interrogation of Goldman Sachs executives by members of a Senate subcommittee. Apparently, the negative perception of Congress is finally getting to our lawmakers.
Most of the country, according to every poll, believes the men and women who represent us are incompetent and unable to cope with the myriad of problems facing the nation. So Congress is trying to divert our attention.
Watching Sen. Levin rant and repeat expletives over and over that were in Goldman e-mails reminded me of the McCarthy hearings, where many Americans were accused of being communists, and the interrogation of Michael Coreleone in one of the “Godfather” movies.
There was a big difference, though. The inquisitors this time didn’t seem to understand the subject matter.
Levin asked every Goldman executive why the company sold “c—-y” and “s—-y” securities to investors. His blatant inability to grasp the differences between trading and traditional investment banking was startling, given that he will be an important participant in the reform of Wall Street.
God help us.
Why hasn’t Congress enlisted Wall Street in their efforts to protect the U.S. from another financial meltdown? The answer is simple. Democrats in Congress need a high-visibility scapegoat to flog publicly for the economic crisis, even if Congress is also one of many responsible parties.
The untold story is that Congress wanted to put every American in a home. This strategy led to a complete breakdown of historical mortgage standards.
Legislators like U.S. Rep. Barney Frank encouraged Fannie Mae and Freddie Mac to approve subprime mortgages to people who couldn’t afford new homes.
When I purchased homes years ago, banks generally required that an applicant’s weekly salary equal one monthly mortgage payment. And the borrower had to put down 20-25 percent of the purchase price.
If suddenly, lenders stop asking for income verification and lend 100 percent or more of the purchase price of a home, what would you expect to happen? The housing bubble burst and millions of undeserving homeowners are now on the street.
It’s true that investment banks failed to recognize that the standards changed while the terms of mortgage-backed securities didn’t. This lack of due diligence certainly exacerbated the problem. But, the culpability of borrowers, mortgage brokers, small community banks and, most importantly,
Congress is very significant.
Perhaps investigators should be looking into the reasons why Congress urged Fannie and Freddie to make c—-y and s—-y loans that have cost the taxpayers several hundred billion dollars already, as well as, the loss of billions of dollars by investors in Fannie and Freddie securities.
On the latter point, why isn’t someone investigating why the federal government allowed investors to believe that it stood behind Fannie and Freddie debt obligations and equity? When the s‹-t hit the fan, Congress was nowhere to be found. Amazingly, this issue has been swept under the carpet, up to this time.
Rather, Congress worries about investors in the now famous Abacus deal that was referred to so often during the Senate investigation. The investors in the transaction are sophisticated, large institutions, and Congress believes they were duped. I don1t think so. Yet, nothing has ever been done to compensate the unsophisticated widows and orphans who did invest in Fannie and Freddie, including my 83 year-old widowed mother.
Congress thought it necessary to accuse a major player of wrongdoing in order to set the stage for financial reform. Wrong, it1s not so. Every knowledgeable party in this country, including the major financial institutions, believes reform of derivatives and highly complex securities is critical. It was totally unnecessary to turn the markets upside down with such a blatant political gambit.
The uninformed and rash actions of Congress, once again, were exactly the wrong things for our country. Significant loss of value in the equity markets based upon fear and a runaway federal government, affects all investors including pension funds, middle class people building retirement nest eggs and seniors. What a dumb move!
And, do you really think Congress didn’t coordinate with the SEC and the White House regarding the timing of the hearings on Goldman? Please.
The last issue has to do with influence of the federal government on businesses and markets. I, for one, am petrified that Congress and the president are usurping more power over business decisions in the country.
Regulations can be effective, but do you really want Obama, Frank, Reid, Pelosi and Emmanuel making operating decisions for your company?
Unless voters do something soon, the administration and Congress will only drill deeper into our private lives. Consider yourselves forewarned.
Sal Bommarito is a novelist and frequent visitor to Vail over the past 20 years.