The Mortgage Deal: A Look Inside Obama’s "Crony Socialism"
The mortgage deal announced yesterday is nothing more than a bank bailout and the very worst example of President Obama’s "crony socialism
When it was announced yesterday that the federal government, various state attorneys general and the largest U.S. banks reached a mortgage deal, many people not in the know likely thought, "good, that’s progress." As it turns out, it’s progress if you’re part of a very select few wealthy individuals who sit at the top of bank org charts. It’s well-known that the $26 billion deal will include a $5 billion cash payment from the banks and $20 billion in "credits." The extra $1 billion is coming from somewhere else (that’s unclear at present).
What the average American probably won’t understand is that those $20 billion in credits that banks will receive by offering principal write-downs will probably have no negative effect on the banks themselves and, instead, on the investors who purchased mortgage-backed securities. The reason? The banks are allowed to offer principal write-downs that affect securitized loans, i.e. – loans that they themselves do not hold, but that are held by pension funds and 401(k)s as well as Fannie Mae and Freddie Mac (which have been bailed out with taxpayer money).
What this means is that second mortgages – which ARE held by the banks – will remain intact, meaning that the rule of law, which states that second liens are subservient to first liens, is being turned on its head. The ONLY parties that benefit from his blatant flouting of the law are the banks themselves – for those keeping track, that’s Ally Financial, Bank of America, Wells Fargo, JP Morgan and Citigroup. Writes Yves Smith of Naked Capitalism, "The mortgage principal write-downs are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401(k)s. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public."
What the average American probably won’t understand is that those $20 billion in credits that banks will receive by offering principal write-downs will probably have no negative effect on the banks themselves and, instead, on the investors who purchased mortgage-backed securities. The reason? The banks are allowed to offer principal write-downs that affect securitized loans, i.e. – loans that they themselves do not hold, but that are held by pension funds and 401(k)s as well as Fannie Mae and Freddie Mac (which have been bailed out with taxpayer money).
What this means is that second mortgages – which ARE held by the banks – will remain intact, meaning that the rule of law, which states that second liens are subservient to first liens, is being turned on its head. The ONLY parties that benefit from his blatant flouting of the law are the banks themselves – for those keeping track, that’s Ally Financial, Bank of America, Wells Fargo, JP Morgan and Citigroup. Writes Yves Smith of Naked Capitalism, "The mortgage principal write-downs are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401(k)s. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public."
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