Palast on Spitzer case/sub prime mortgage scandal
Source Dave Anderson
Date 08/03/16/11:37

Eliot’s Mess
Published March 14th, 2008 in Articles, Podcasts

The $200 billion bail-out for predator banks and
Spitzer charges are intimately linked

By Greg Palast
Reporting for Air America Radio’s Clout

March 14th, 2008

WHILE New York Governor Eliot Spitzer was paying an
‘escort’ $4,300 in a hotel room in Washington, just
down the road, George Bush’s new Federal Reserve Board
Chairman, Ben Bernanke, was secretly handing over $200
billion in a tryst with mortgage bank industry

Both acts were wanton, wicked and lewd. But there’s a
BIG difference. The Governor was using his own
checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its
history, loaned a selected coterie of banks one-fifth
of a trillion dollars to guarantee these banks’
mortgage-backed junk bonds. The deluge of public loot
was an eye-popping windfall to the very banking
predators who have brought two million families to the
brink of foreclosure.

Up until Wednesday, there was one single, lonely
politician who stood in the way of this creepy little
assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the
bankers’ enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street’s line that
millions of US families are about to lose their homes
because they bought homes they couldn’t afford or took
loans too big for their wallets. Ba-LON-ey. That’s
blaming the victim.

Here’s what happened. Since the Bush regime came to
power, a new species of loan became the norm, the
‘sub-prime’ mortgage and its variants including loans
with teeny “introductory” interest rates. From out of
nowhere, a company called ‘Countrywide’ became
America’s top mortgage lender, accounting for one in
five home loans, a large chunk of these ‘sub-prime.’

Here’s how it worked: The Grinning Family, with US
average household income, gets a $200,000 mortgage at
4% for two years. Their $955 monthly payment is 25% of
their income. No problem. Their banker promises them a
new mortgage, again at the cheap rate, in two years.
But in two years, the promise ain’t worth a can of
spam and the Grinnings are told to scram - because
their house is now worth less than the mortgage. Now,
the mortgage hits 9% or $1,609 plus fees to recover
the “discount” they had for two years. Suddenly,
payments equal 42% to 50% of pre-tax income. The
Grinnings move into their Toyota.

Now, what kind of American is ‘sub-prime.’ Guess. No
peeking. Here’s a hint: 73% of HIGH INCOME Black and
Hispanic borrowers were given sub-prime loans versus
17% of similar-income Whites. Dark-skinned borrowers
aren’t stupid – they had no choice. They were
‘steered’ as it’s called in the mortgage sharking

‘Steering,’ sub-prime loans with usurious kickers,
fake inducements to over-borrow, called ‘fraudulent
conveyance’ or ‘predatory lending’ under US law, were
almost completely forbidden in the olden days (Clinton
Administration and earlier) by federal regulators and
state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and
its banking brethren were told to party hearty – it
was OK now to steer’m, fake’m, charge’m and take’m.

But there was this annoying party-pooper. The Attorney
General of New York, Eliot Spitzer, who sued these
guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok,
Bush’s regulators went on the warpath against Spitzer
and states attempting to stop predatory practices.
Making an unprecedented use of the legal power of
“federal pre-emption,” Bush-bots ordered the states to
NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block
Spitzer’s investigation of ugly racial mortgage
steering. Bush’s banking buddies were especially
steamed that Spitzer hammered bank practices across
the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their
predatory enablers in the investment banking
community. Behind Countrywide was the Mother Shark,
its funder and now owner, Bank of America. Others
joined the sharkfest: Goldman Sachs, Merrill Lynch and
Citigroup’s Citibank made mortgage usury their major
profit centers. They did this through a bit of
financial legerdemain called “securitization.”

What that means is that they took a bunch of junk
mortgages, like the Grinning’s, loans about to go down
the toilet and re-packaged them into “tranches” of
bonds which were stamped “AAA” - top grade - by bond
rating agencies. These gold-painted turds were sold as
sparkling safe investments to US school district
pension funds and town governments in Finland

When the housing bubble burst and the paint flaked
off, investors were left with the poop and the bankers
were left with bonuses. Countrywide’s top man, Angelo
Mozilo, will ‘earn’ a $77 million buy-out bonus this
year on top of the $656 million - over half a billion
dollars – he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be
over. Angry regulators, burned investors and the
weight of millions of homes about to be boarded up
were causing the sharks to sink. Countrywide’s stock
was down 50%, and Citigroup was off 38%, not pleasing
to the Gulf sheiks who now control its biggest share

Then, on Wednesday of this week, the unthinkable
happened. Carlyle Capital went bankrupt. Who? That’s
Carlyle as in Carlyle Group. James Baker, Senior
Counsel. Notable partners, former and past: George
Bush, the Bin Laden family and more dictators,
potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and
dumped $200 billion on the poor little suffering
bankers. They got the public treasure – and got to
keep the Grinning’s house. There was no ‘quid’ of a
foreclosure moratorium for the ‘pro quo’ of public
bailout. Not one family was saved – but not one banker
was left behind.

Every mortgage sharking operation shot up in value.
Mozilo’s Countrywide stock rose 17% in one day. The
Citi sheiks saw their company’s stock rise $10 billion
in an afternoon.

And that very same day the bail-out was decided – what
a coinkydink! – the man called, ‘The Sheriff of Wall
Street’ was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, “Take
him down today!” Naw, that’s not how the system works.
But the big players knew that unless Spitzer was taken
out, he would create enough ruckus to spoil the party.
Headlines in the financial press – one was “Wall
Street Declares War on Spitzer” - made clear to Bush’s
enforcers at Justice who their number one target
should be. And it wasn’t Bin Laden.

It was the night of February 13 when Spitzer made the
bone-headed choice to order take-out in his Washington
Hotel room. He had just finished signing these words
for the Washington Post about predatory loans:

“Not only did the Bush administration do nothing to
protect consumers, it embarked on an aggressive and
unprecedented campaign to prevent states from
protecting their residents from the very problems to
which the federal government was turning a blind eye.”

Bush, Spitzer said right in the headline, was the
“Predator Lenders’ Partner in Crime.” The President,
said Spitzer, was a fugitive from justice. And Spitzer
was in Washington to launch a campaign to take on the
Bush regime and the biggest financial powers on the

Spitzer wrote, “When history tells the story of the
subprime lending crisis and recounts its devastating
effects on the lives of so many innocent homeowners
the Bush administration will not be judged favorably.”

But now, the Administration can rest assured that this
love story – of Bush and his bankers - will not be
told by history at all – now that the Sheriff of Wall
Street has fallen on his own gun.

A note on “Prosecutorial Indiscretion.”

Back in the day when I was an investigator of
racketeers for government, the federal prosecutor I
was assisting was deciding whether to launch a case
based on his negotiations for airtime with 60 Minutes.
I’m not allowed to tell you the prosecutor’s name, but
I want to mention he was recently seen shouting,
“Florida is Rudi country! Florida is Rudi country!”

Not all crimes lead to federal bust or even public
exposure. It’s up to something called “prosecutorial

Funny thing, this ‘discretion.’ For example, Senator
David Vitter, Republican of Louisiana, paid Washington
DC prostitutes to put him in diapers (ewww!), yet the
Senator was not exposed by the US prosecutors busting
the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done
in these cases - was made at the ‘discretion’ of
Bush’s Justice Department.

Or maybe we should say, ‘indiscretion.’

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