Borrowers and Bankers: A Great Divide

[Crewleader]

By GRETCHEN MORGENSON
Published: July 20, 2008

THE credit crisis has exposed and worsened a dangerous and deepening divide in this country between a vast number of average borrowers and a fairly elite slice of corporations, banks and executives enriched by the mortgage mania.


Borrowers who are in trouble on their mortgages have seen their government move slowly — or not all — to help them. But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts.

On the ground, this translates into millions of troubled borrowers, left to work through their problems with understaffed, sometimes adversarial loan servicing companies. If they get nowhere, they lose their homes.

http://www.nytimes.com/2008/07/20/business/economy/20gret.html?

[Skittles]

1. it's a very f***ed up situation

once again, only the "little people" are being held accountable

[fasttense]

2. When the bushes are finished wringing out America ,

the middle class will be left to bail out the country and suffer the consequences for a handful of elite bankers and speculators. The shock doctrine at work again. This time destroying America instead of Chile, Russia or Korea.

"Bailouts are also ticklish affairs because of the precarious state of our economy. As Americans are being asked to shore up reckless financial companies, they are also being punished by high oil prices, rocketing food costs and a stomach-churning slide in the buying power of their currency, the once-almighty dollar."

[EV_Ares]

3. That is because the government was in on it too. The FDIC for instance as you can see from this WSJ

FDIC Faces Mortgage Mess
After Running Failed Bank

Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them.


It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers' incomes, according to a written report from a government-hired expert. The report said that many of the loans never should have been made in the first place.

FROM THE CASE FILINGS:

Link to this entire story below. Requires a subscription to the WSJ:

http://online.wsj.com/article/SB121641296022866029.html?mod=hps_us_whats_news

[Trillo]

4. I read this last night, well enough written, but something seemed "off".

I believe it was the repetition of the idea that some entites are too big to fail, while people are to small to help. Anyway, is that even correct? It seems to me the logic is twisted. When dealing with massive numbers of folks, shouldn't that idea be rephrased as some entites are to elite to fail, while many people en-masse, i.e., the largest group, are too big to bail out?

The Bear Stearns bailout increased the size of JPMorgan, making an even bigger entity, but he fails to note this.

But this is his main point: "HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside?"

That is precisely what has occurred with most people. CPI is understated, wages not only stagnate but actually decline, jobs are outsourced to other countries while people cannot move to those jobs so easily, since the early 80s there's a massive swelling of homeless folks whose first amendment rights to peacefully congregate are stepped on, and on and on. In other words, his point about disallowing bubbles in the first place is precisely what has happened to the largest group, the have nots and have littles, in fact their economic bubble was inverted over the last 30 years, just not for the elite corporations that are connected to and owned by the right uber-wealthy folks.

Yet, the solution is repeated so often in the text that it's understood as a given, that these huge corporations will be 'bailed' because 'they're too big to fail'. Perhaps this is why he didn't mention that JPMorgan is now bigger than before Bear Stearns corpse was given to them.

I guess what I find off-taste about this OpEd is how corporate welfare is so entirely reasonable when it's based upon such a mistruth, or misunderstanding, or twists upon the truth.