Thursday, October 16, 2008
Horse Out of the Barn; Feds On the Case!
U.S. Agencies Investigate WaMu Failure
Federal prosecutors are investigating the failure of Washington Mutual Inc., citing the “intense public interest” in the largest bank collapse in the history of the U.S….
The investigation into Washington Mutual is part of the a wider effort by U.S. law enforcement to determine the extent of fraud connected to the subprime-lending troubles that have batter financial institutions.
Federal investigators…have been delving into the books of Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc….
—The Wall Street Journal
That is the story, and we are not making it up: now that the subprime explosion has littered the landscape with dead banks, vacant neighborhoods and zombie homeowners, the Feds are on the case!
They’re going to look into exactly what might have caused this problem, like, three years ago.
And then they’re going to…well, we’re not sure what they’re going to do.
Write a report? Form a blue-ribbon commission? Whine?
We met a mortgage broker several years ago—when and where we don’t recall—who gave us a hair-raising preview of the impending doom now pending all across the globe.
Money was so easy and brokers so unscrupulous, he told us, that mortgages were being sold to working class urban multifamily home-buyers who would not be able to make a mortgage payment if they missed a day of work or if the illegal tenant in the basement skipped out.
Most sickeningly, in his eyes, was the fact that these poor shlubs did not understand that the fee to the mortgage broker—hidden as it was inside the mysterious stack of documents they could barely read—was often more than the down-payment they were borrowing from relatives.
But, he assured us, neither of the first two points mattered because the mortgages these home-buyers were signing were variable-rate mortgages with absurdly low up-front interest rates: “they won’t be able to pay anyway once the teaser rate evaporates,” he said.
Did anyone investigate those mortgage brokers? Of course not: things were good, and the mortgage lobby was powerful.
Besides, Congress wanted Fannie Mae and Freddie Mac to lend more—not less. And Time Magazine was telling us “Why We Love Our Homes,” so the public wanted in on the game. Plus, all the tax money from those real estate deals was helping governments across this land balance their budgets.
Even the first signs of a crisis did not spur anyone into action.
Last May, when David Einhorn said, in public, the Feds ought to recapitalize Lehman Brothers before the worst-case scenario happened, did anyone think to investigate?
Instead, Einhorn was dismissed as a crank, a short-seller, a guy with an axe to grind. By the very company that went bankrupt last month.
So now that the horse is out of the barn, across the north forty and into the next state, the sheriff is arriving at the scene of the crime to search for clues.
Unfortunately, they will find that the barn has already burned to the ground.
I Am Not Making This Up
© 2008 NotMakingThisUp, LLC
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Posted by Jeff Matthews at 8:13 AM