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Secret Fed loans led to $13 billion in bank profits. The Fed concealed from Congress which banks borrowed, when, how much and at what interest rate.

Who was looking at the numbers? Who was minding the store? These were the questions I was asking myself back in the fall of 2007, when the sub-prime mortgage crisis began.

I was questioning and focusing on the mortgage products that were the root causes, the ARM (Adjustable Rate Mortgage) and the Sub-prime (no documentation).

If these were the reasons for the default tsunami, begun in 2006-2007, why wasn’t someone, anyone, in the know (i.e. Chairman of the Federal Reserve Alan Greenspan), looking at the individual mortgage products to see if they were indeed based on truthful, fact-based documents.

In the 90′s, when I took a course to become a certified loan officer, I asked my instructor, “What was the historical breakdown of all approved mortgage products.” He stated: Fixed rate – 80%; Jumbo – 10%; ARM/Sub-prime – 10%. In 2000. the Arm/Sub-prime was 17% of the total and in 2005, the ARM/Sub-prime was up to 44%.

A deviant trend had been established in the last decade without any logical reason. If any regulator had bothered to investigate, they would have found the answer – rampant fraud.

In January 28, 2008, I read a small article in the Wall Street Journal about the due diligence (quality control) in the mortgage business, of companies that verify the data and documents of the approved mortgage application. New York Attorney General Andrew Cuomo had gained the cooperation and testimony of Clayton Holdings (founded in 2005; Shelton, Conn.), a due diligence company for the investment bankers, in a criminal investigation to determine the depth of the fraud perpetrated. They did. Another company, Watterson-Prime (Bellevue , Wash.) was also under investigation.

If someone, anyone in authority, had bothered to see and investigate the aberrant trend of approved mortgage products, the sub-prime mortgage crisis would have been stopped in its tracks in June 2006.

Warren Nystrom
Swisshelm Park, Pa.

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Early last Friday morning, as the Occupy Wall Street protesters were just uncurling from their sleeping bags, I went downtown for a walkthrough of their campsite at Zuccotti Park, now also known as Liberty Plaza. I met up there with AFL-CIO President Rich Trumka and New York City Central Labor Council President Vincent Alvarez. (I’m president of an AFL-CIO affiliated union.)

There were just a few of us in our group, and as the sun burned through the dawn’s chill, not much attention was paid as we took the tour. We kept our voices low and walked carefully, doing our best to keep from tripping over and waking those who were still asleep

One or two reporters hooked up with us, not including the kid you may have seen with the fake cardboard Fox News camera and microphone, who tossed out questions as he walked along behind us. That was the extent of the media coverage.

Every once in a while someone would ask who Trumka was and he would stop and chat. At the end of our visit, he sat with a group at the west end of the park, across from ground zero, and quietly offered encouragement, discussing strategy, goals and on a practical level, the essentials needed to keep the protest going.

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The Federal Reserve Board has provided the basis for thousands of conspiracy theories in its near-100-year existence. These conspiracies have some basis in reality as can be seen by the Fed’s recent moves on monetary policy. In the last two meetings of the Fed’s Open Market Committee (FOMC), the Fed’s key decision-making body, the members appointed through the political process unanimously supported stronger measures to spur growth and create jobs. By contrast, three of the five voting members appointed by the banking industry opposed further action.

This extraordinary split has not received the attention it deserves. It suggests that the financial industry is using its power at the Fed to try to block the course preferred by the appointees of democratically elected officials of both parties.

The Fed is an enormously important if poorly understood institution. Its control of monetary policy (primarily short-term interest rates) gives it the ability to speed up or slow growth. It also has enormous regulatory power. Alan Greenspan could have used this authority to put a check on the junk loans that fueled the housing bubble in the years 2002-2006.

If the Fed wants to ensure that the economy does not grow too rapidly it can slow growth by pushing up interest rates. This was the cause of all the post-war recessions prior to the last two as the Fed raised interest rates in order to reduce growth and employment and thereby slow inflation. (more…)

The Occupy Wall Street protests are shining a national spotlight on the most powerful, dangerous, and secretive economic and political force in America.

If this country is to break out of the horrendous recession and create the millions of jobs we desperately need, if we are going to create a modicum of financial stability for the future, there is no question but that the American people are going to have to take a very hard look at Wall Street and demand fundamental reforms.  I hope these protests are the beginning of that process.

Let us never forget that as a result of the greed, recklessness, and illegal behavior on Wall Street, this country was plunged into the worst economic downturn since the Great Depression.  Millions of Americans lost their jobs, homes, and life savings as the middle class underwent an unprecedented collapse.  Sadly, despite all the suffering caused by Wall Street, there is no reason to believe that the major financial institutions have changed their ways, or that future financial disasters and bailouts will not happen again.

More than three years ago, Congress rewarded Wall Street with the biggest taxpayer bailout in the history of the world. Simultaneously but unknown to the American people at the time, the Federal Reserve provided an even larger bailout. The details of what the Fed did were kept secret until a provision in the Dodd-Frank Act that I sponsored required the Government Accountability Office to audit the Fed’s lending programs during the financial crisis. (more…)

Today Ben Bernanke added his voice to those who are worried about Europe’s debt crisis.

But why exactly should America be so concerned? Yes, we export to Europe – but those exports aren’t going to dry up. And in any event, they’re tiny compared to the size of the U.S. economy.

If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.

Financial chaos.

Investors are already getting the scent. Stocks slumped to 13-month low on Monday as investors dumped Wall Street bank shares. (more…)

Whatever shred of doubt you may have harbored about the determination of congressional Republicans to keep the economy in the dumps through Election Day should now be gone.

Today, in advance of a key meeting of the Federal Reserve Board’s Open Market Committee to decide what to do about the continuing awful economy and high unemployment, top Republicans wrote a letter to Fed Chief Ben Bernanke.

They stated in no uncertain terms the Fed should take no further action to lower long-term interest rates and juice the economy. “We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy.” (more…)

Federal Reserve Chair Ben Bernanke’s closely watched annual speech at this morning’s session of the Fed’s Jackson Hole Conference is a good illustration of why Thomas Carlyle referred to economics as the dismal science. Chairman Bernanke was doubly dismal, not just as an economic pessimist but as a political coward.

Bernanke’s assessment of the economy was typically qualified with on-the-one-hand-this, on-the-other-hand-that, to reassure financial markets. But worse, it was gutless in terms of the proposed solutions to the crisis.

On the one hand, said Bernanke, manufacturing is up 15 percent, households are paying off debts, and the banking system has not gone off a cliff. On the other hand, unemployment is stuck on a plateau of over 9 percent, the housing mess is dragging down the economy, and despite low interest rates for the elite, most borrowers face tight credit conditions.

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From National Public Radio’s Morning Edition … George Packer’s article in The New Yorker follows the U.S. attorney for the southern district of New York during an insider trading case. In “A Dirty Business,” Packer explores why it’s been difficult to build prosecutions directly tied to the financial crisis. Packer talks to Steve Inskeep about what he’s learned during his investigation.

By Sam Pizzigati
Editor, on line weekly Too Much

America‘s top bankers and CEOs don’t have any more talent than millions of other Americans. They do have, two timely new data dumps remind us, plenty of generous friends in pivotal places.

We Americans, former Reagan White House budget director David Stockman told a reporter last week, “no longer have a democracy.” Instead, Stockman charged, we have “crony capitalism,” a system that’s rigging the economy to benefit the powerful few — at everyone else’s expense.

Last week brought still more evidence on how revoltingly raw this rigging has become. Wall Street and Corporate America, new data detail, have some incredibly thoughtful cronies who sit in some incredibly important places.

Some of these cronies run the Federal Reserve. Others serve on corporate boards of directors. Together, they’ve made the Great Recession a Great Sensation — for America’s corporate and banking elite. (more…)