There is no appropriate polite way to say it: you, the average American public, are being set up for your next economic reaming.
It's all happening in plain sight, but it isn't making the front pages, and your Congresscritters and Senators aren't going to make a stink unless you do first.
The Fed, the banks, and some states are starting up plans to bail out subprime lenders. YOU are being set up to pay the bill. Meanwhile the Supreme Court has ensured that your state can't prevent the same pump-and-dump from happening in the future. Profits have been privatized, now the multibillion dollar costs are about to be foisted on the public, and the wash/rinse/repeat is being set up for another round. The set-up is pretty clear, I will give you the links below.
I am going to try to keep the body of this diary brief, and provide you with the links to read on your own.
You recall a month ago when subprime mortgage brokers were failing in droves. Then, all of a sudden, it got quiet and, lo and behold, large banks and Wall Street houses were buying up the wreckage at bargain basement rates.
Meanwhile, a number of states started their own bailout packages, and now the Federal Reserve, which until recently had been talking about tightening credit standards, has now reversed course and is participating in the bailouts. So is Freddie Mac (by the way, Wall Street believes the US Government, i.e., YOU, implicitly guarantees Freddie Mac).
Mish has an excellent, lengthy blog today discussing the bailouts. I'll summarize for you:
Let's be realistic here. This has nothing to do with helping out distressed borrowers. This has everything to do with helping out lenders who are stuck in loans with increasing chances of default.
The prudent thing to do would be to stop risky lending practices cold. The way to do that would be to punish irresponsible lenders and borrowers both. Instead the Fed is attempting to prop up asset prices by the carrot and stick method of relaxing regulatory penalties for misbehavin'
It's a brilliant plan. Let's reward the totally inept with 5.5% loans. Let's make everyone wish they got trapped in loans they could not afford. But what happens when this escalates from subprime to Alt-A to prime? Are we going to bail out everyone? Who is it we are bailing out anyway: the homeowner or the predatory lender? A better question is: Are we bailing out anyone at all or just padding the pockets of a new set of lenders? ....
By the way, who exactly are those 5.5% subprime loans going to be sold to? I suppose when push comes to shove the government could always pad another pocket and guarantee them.... Shame on us.
The Fed wants to rein in Fannie and Freddie but they are bound and determined to expand business. This is another disaster in the works. Fannie and Freddie bonds trade as if there is a government guarantee even though there is none.
....
This is a slippery slope we are on and it has nothing really to do with bailing out homeowners. For Fannie and Freddie it is a way to get Congress off their backs and start expanding again regardless of risk.... And it certainly is not a "good business opportunity" for anyone except perhaps someone with a government guarantee or government funds.
In case you thought the States could take care of this via predatory lending laws, think again. Just yesterdary, the Bushco Supreme Court ruled that
mortgage lending subsidiaries of national banks are exempt from state regulation. Every state attorney general and bank regulator had urged the High Court to protect these state laws, especially in light of federal inaction in the face of abuse by predatory lenders.
This whole shameful affair, a coordinated ploy t again privatize profit in the hands of the slimiest lenders, while making the risk public, was nicely described at length by Russ Winter, who summarized this as
a pronged approach but mostly centered around hiding or unloading the carcasses. Dump as much on foreign central banks as possible at inflated prices, then get the GSEs in on the game to socialize the losses on Brazil Americans, young children, and future generations. I saw an interview on Bloomberg last night where a Pig Man was literally gloating about it.
The problem with this dump stratagem is that the marks (foreigners and average Americans) are already at the tipping point on what they can absorb from these rackets.
To summarize: you'd better pressure you democratic Senators and Congresspeople to enact a Federal Usury Law; or else get ready to pull out your checkbook to reward predatory lenders and ignorant borrowers.