Subprime Mortgage Crisis Continues

With the federal government bought and paid for by the banking cartel, we have witnessed some of the largest transfers of wealth from the middle class to the elite ruling upper class. Big money lobbying controls most political leaders and stops government from regulating usurious interest rates or stopping the rape of poor neighborhoods in which thousands of families are losing their homes through predatory mortgage, home-improvement and foreclosure scams.

In a subprime mortgage bubble created by the Federal Reserve with easy cheap money, millions of Americans lost their homes to the banking cartel in what is perhaps the greatest looting of the middle class in the early 21st Century. From May 2000 to December 2001, the Federal Reserve lowered the Federal funds rate 11 times, from 6.5% to 1.75%. The crisis began with the bursting of the US housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM). Once home prices failed to go up as anticipated, refinancing became more difficult and defaults and foreclosure activity increased dramatically as easy initial terms expired and ARM interest rates reset higher.

You can't fully understand the current crisis without knowing about one of it's root causes, the Commodity Futures Modernization Act of 2000, cosponsored by Sen. Phil Gramm (now a vice-chairman of UBS Investment Bank and was John McCain’s presidential campaign co-chair and his most senior economic adviser from summer 2007 to July 18, 2008.) and signed into law by President Bill Clinton on Dec. 21, 2000.

Another piece of legislation spearheaded by Phil Gramm in efforts to pass banking reform laws, include the landmark Gramm-Leach-Bliley Act in 1999, which served to reduce government regulations in existence since the Great Depression separating banking, insurance and brokerage activities. This act allowed commercial and investment banks to consolidate.

America's Mortgage Industry Nationalized by the Federal Government
In a classic pyramid scheme style, by buying mortgages and repackaging the loans for resale via mortgage-backed securities, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. Income is generated for Fannie Mae through the positive interest rate spread between the rate paid to fund the purchase of mortgage investments and the return it earns on those retained mortgage investments in the derivatives market.

It's here in the Shadow Financial Markets of derivatives where Bear Stearns, Fannie Mae, Freddie Mac, and others got in to financial trouble. To better understand how this confusing economy works, listen to Law professor Michael Greenberger explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.

The Treasury Department and the Federal Reserve took steps in 2008 to bolster confidence in Fannie Mae and Freddie Mac, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs' stock. On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008, intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding. On Sept.5, 2008, the Treasury Department placed both Fannie Mae and Freddie Mac into conservatorship and took over management of the pair.

America's Insurance Industry Nationalized by the Federal Government
On Sept. 16, 2008, American International Group (AIG) got $85 Billion handed to them by the Federal Reserve in exchange for an 80% stake, yet people can't get help with keeping their homes. Jim Rogers, CEO of Rogers Holdings said, "they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this."

Both of the major candidates for President, McCain and Obama have deep roots in the mortgage crisis and neither one is talking about what is really going on. The government doesn't seem interested in protecting the real victims in this scandal – the people losing their homes in foreclosure and bankruptcy. Rather, they are protecting the golden parachutes of the CEO's of these financial institutions while transferring the wealth of the middle class to the ruling crony banksters. And, as if to rub salt into the gaping American wound, the American taxpayer is expected to pay for the bailouts of these criminal enterprises.