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Vail Valley Voices: Let’s nationalize ‘too big to fail’ banks

Bill Sepmeier
Vail, CO, Colorado
newsroom@vaildaily.com

Phil Gramm, the guy who personally deregulated the financial industry, who worked tirelessly to repeal the Glass-Steagle Act, and at the bidding of his friends on Wall Street, did more to bring the world today’s global economic disaster than almost anyone else, was rambling on in an op-ed piece this weekend in The Wall Street Journal.

Mr. Gramm wrote, about the present economic situation:

“Buyers bought houses they couldn’t afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, the properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.”



What Gramm said isn’t really news today. But it is news, since the honorable Mr. Gramm is really saying that under the deregulation he pushed for and achieved, banks made loans they knew could never be paid back under the original terms and therefore were not really mortgages ” they were more like rental agreements.

Bankers and brokers sold these “loans” to consumers under false pretense. By definition, a mortgage is an amortized loan that leads to the ownership of the underlying property. A “loan” that is made by a “lender” with the knowledge that it is never going to be repaid but is intended to be refinanced, terminated or simply walked away from at some date in the future is not really a mortgage. It’s a lease.



These same banks and their brokerage houses then packaged up and sold these worthless “assets” at significant profits and did this again and again and again. There’s a word for this. Fraud.

Of course, Gramm accepts no responsibility for any of it now.

Ben Bernanke, who is still the Federal Reserve chairman, describes a U.S. economy “returning to growth next year without generating many new jobs,” according to an early printed release of his remarks.



According to Bloomberg.com, “even with credit markets thawing, Fed officials see unemployment persisting at 8 percent or higher through the final three months of 2010.” Economic growth without job creation? An arbitrary increase in the nation’s money supply that, while “thawing credit,” devalues the currency and wipes out savings and increases prices, creates the numerical appearance of “economic growth” without increasing the growth of anything at all, except the amount of money created by the Fed? There is a word for this, too. Inflation. Old-school inflation. Google: “Weimar Republic.”

Millions of people didn’t just buy houses they knew they couldn’t afford. They were sold the concept of “home ownership” and those houses and the so-called mortgage that came with them by people who knew that the mortgage was never going to be paid back under the original terms as written.

The sellers of these financial instruments knew going into the deals that the possibility of actually doing that was mathematically impossible. Then these same bankers packaged and resold “asset-backed securities” secured by these “loans” to hapless investors globally.

Of course, many home buyers were aware of the new game. They knew they wouldn’t be able to cover the eventual interest rate, but they didn’t plan to. They calculated that they could “flip” the property or refinance it before things got out of hand. Some 90 million or so did.

But millions more got caught when the buyers of the so-called “mortgage-backed securities” figured out they weren’t worth the paper they were printed on when a federal judge in Cleveland ruled that one had to have a real signed mortgage, not just an “interest” in one, to repossess a home in August 2007.

The cause of the economic crisis we face today was simply … fraud. A fraud of such proportion, it boggles the mind.

With Wall Street’s successful repeal of the Glass-Steagle Act, banks and brokerages were allowed to merge for the first time since the act had been passed following the Great Depression, which was primarily caused by … a lack of separation of banking and speculation.

Within a few short years, these institutions were operating with debt-to-asset ratios of 30:1 or more, and their so-called “assets” were primarily made up of loans they knew were going to go bad when they were made.

This type of business plan is not really an example of the behavior of law-abiding people who care about their community.

It’s time to stop our bailouts of the people who perpetrated this fraud. Time to quit being afraid that the empty shells of the institutions these people looted are “too big to fail.” That’s just silly, since they already have. They’ve failed spectacularly, “in front of God and everybody,” as my mom used to say. The only thing they haven’t done is declare bankruptcy, which would wipe out the losses.

Well, it’s time for somebody to put them ” and us ” out of their misery. The American taxpayers have already given the Wall Street banking industry more money than its combined market capitalization value today is worth and have received nothing in return. There’s no “right to life” for a failed corporation or a delusion.

It is time to nationalize the banks that perpetrated this fraud and to do it without contributing another cent besides the FDIC funds needed to pay off the depositors who have been oblivious (or on Mars) and haven’t put their money somewhere else already. It is time to prosecute the criminal class of Wall Street bankers who have stolen the developed world’s short-term future. Of course, these people couldn’t have gotten away with this unprecedented fraud without their full partners in government. Sadly, this includes people like the new treasury secretary and the new administration’s top economic adviser, both of whom were riding along as the American people were rounded up, penned and then fleeced like sheep, herded by the usual “dogs” of war and fear while being extolled to simply borrow more to relieve their stress.

According to Marketwatch and other sources: Before Feb. 19’s trading session, Richard Russell, the editor of Dow Theory Letters, had been officially neutral on the stock market’s major trend. Russell, after that day’s close, changed his outlook and advice.

“With a great bear market (now) in force, we’re forced to think in terms of individual or family survival. My subscribers and I are on our own now, dealing with a government that is attempting to print itself out of a bear market. More inflation on top of a bear market that was created out of debt and inflation will not work; at least I don’t see it working (nor does the market).”

The market indeed does not believe. It closed Monday at the levels of 1997, wiping out 12 years of capital gains.

The global financial world is in a panic, as well it should be. That “top 1 percent” we hear about has been taking its profits and running like hell for the exit since 2007, when a judge’s ruling signaled the scheme’s end to those who were paying attention, and the “credit crunch” began.

Credit crunch? “Solvency” crunch would be a far more accurate term. Why else is the price of gold hovering at $1,000 an ounce? The fractional-share game is up. The bankers in Washington and New York are panicking since they know that sooner or later, we’ll all follow them and bail out ourselves. Cash out while you can, and then get out of cash itself, cash which is being created at rates unknown since the Weimar.

According to the Treasury’s own published reports, which tell anyone interested in looking, the Fed used simple double-entry accounting to increase the supply of government-issued money by some 66 percent late last year, and the presses are still rolling, to prevent “deflation.” Deflation simply means that people aren’t spending beyond their means, they’re saving, paying off bills or are out of work and don’t have EZ Credit anymore.

If Wall Street’s fraud and the spin-off loss of bank-created money wasn’t so huge, this would be our base inflation rate: 66 percent a year and growing.

Once the trillions of dollars of fraud loss finally clears the books, the people at the Fed hope they can somehow recall this fresh “fiat” cash to prevent hyper-inflation. Maybe they can, by raising interest rates to 20 percent or 30 percent a year. Well? How else does one recall cash?

The truth is probably more frightening: None of these clowns knows what they’re doing.

“Individual and family survival,” “economic growth without jobs” … welcome to the so-called New American Century. We do have to survive, after all.

Without sheep, there’s nothing for to shear. Unfortunately, hungry sheep produce about as much wool for their masters as healthy, well-fed sheep. Even more unfortunately, the bankers ” the guys with the shears ” weren’t ever shepherds.

Bill Sepmeier is a longtime Vail Valley resident.


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