The American Housing Meltdown. How? Why?

The first in a two-part series from Whiteout Press. Be sure to read tomorrow's column detailing the collapse of America's economy, and how it happened.

April 30, 2011. Today's column however, gives a step-by-step account of the events preceding the 2005 American Housing Collapse. The following information was compiled from years of testimony and dozens of books written by the men who were at the heart of the housing bubble, and it's implosion.

Step 1: Home builders build luxury houses for the rich and ignore the other 80% of society’s housing needs. Why? Because that's where the most money is and their main mission is to maximize profits for their owners or stockholders.

Step 2: The remaining 80% of Americans pursue the American dream and continue to apply for loans to buy a home.

Step 3: President Clinton and Alan Greenspan publicly demand financial lenders approve more regular Americans for home loans to make the American dream accessible to the forgotten 80% of Americans.

Step 4: The U.S. Federal Government (U.S. Taxpayers) agree to insure 90% of all home loans in America through Fanny Mae and Freddy Mac, no matter how fraudulent they are.

Step 5: Investment fund managers (pension funds, hedge funds, unions, local, state and foreign governments, regular investors world-wide) see win/win with the American taxpayer backing 90% of all home loans. Even if millions of home buyers default, the American people will reimburse the banks and investors.

Step 6: Investments on home mortgages are phenomenally profitable with the U.S. taxpayer guaranteeing the profits. Investors world-wide flock to the U.S. to invest in this ‘sure thing’. However, there are only so many Americans and only so many houses to mortgage. The investment community is desperate for more ‘sure thing’ opportunities.

Step 7: Investment Banks such as JP Morgan, Goldman Sacks, Lehman Brothers, Bear Stearns and Merrill Lynch each concoct their own similar scam independently from each other to create ‘mortgage backed securities’ out of actual physical mortgages. To the uneducated masses like us, that means instead of asking their customers to buy a part of an actual mortgage with a 10% default possibility, they dumped thousands of individual mortgages into a ‘pool’ or ‘fund’ and asked their customers to buy a small piece of the entire fund. Why? It doesn't create any more or less mortgages to bet on? Their official explanation – Instead of each individual investor receiving an 8% profit and having a 2% chance of losing ALL their money if the home buyer defaulted on their loan, that one default would be spread around to thousands of investors, thus guaranteeing a 7.999% profit for everyone – again, win/win.

Step 8: Since the MBS (Mortgage Backed Securities) didn’t create any more U.S. taxpayer guaranteed mortgages for the world’s profit-hungry investors to buy up, the Investment Banks put out the word that they would buy any and every mortgage regardless of how risky, fraudulent or guaranteed to fail the mortgage was. Why? Because they could resell the same mortgage 10 or 100 times. With the U.S. taxpayer promising to reimburse all investors world-wide if their gamble lost, millions of investors throughout the world flocked to America’s Investment Banks to invest in these win/win securities. America’s Investment Banks funded tens of thousands of new ‘mortgage originators’ overnight in an attempt to create more mortgages to invest in.

Step 9: Small, local, start-up companies were created to loan anyone and everyone money to buy a home, buy ten homes or get a fifth mortgage on their existing home. When they ran out of credit-worthy Americans to loan money to, these ‘mortgage originators’ created one of the most fraudulent and corrupt tools to loan more money to more Americans. Going by many names, these large loans were made to people with no income, no collateral and in some cases, no heart beat or human DNA. Thanks to deregulation, the ‘mortgage originators’ created loans for unworthy people and gave them the name, ‘Subprime Mortgages’.



Step 10: The outside fix – The mortgage originators knew the loans they made were impossible to pay off and were guaranteed to default. They were set up to maximize profit because less-worthy borrowers were charged higher fees and interest rates, meaning even larger profits for global investors and the Investment Banks profiting off of each and every mortgage, including the fraudulent ones. Mortgages with sky-high interest rates and impossible balloon payments scheduled after only two years were the norm. Knowing these homeowners were doomed to default, the mortgage originators and Investment Banks didn’t make that fact known. Why? Because the American homeowner had never defaulted in large numbers in history and that was the premise the world’s investors were acting on..

Step 11: The inside fix – Since all Mortgage Backed Securities are rated by one of the three ‘ratings agencies’ (Moody’s, Standard & Poor, and Fitch), the mortgage originators and Investment Banks needed to get the ratings agencies on board to fraudulently rate these worthless mortgages as ‘AAA’. In exchange for large bribes and a share in the loot, aka ‘fees’, the ratings agencies blatantly lied and gave them all AAA ratings.

Step 12: Historically, Americans had a mortgage default rate of 1 in 100 during good times and 1 in 50 during hard times. Now after two years, hundreds of thousands of homeowners were finally understanding the fine print of the contracts they signed and an unprecedented 1 in 5 U.S. mortgages was going into default. With the industry fraud slowly coming to light and with no more Americans willing to be scammed by these fraudulent ‘low income’ and ‘no income’ loans, home buyers vanished from the housing scene and millions of houses across America suddenly found themselves on the market, grossly overpriced and with no buyers.

Step 13: Unable to sell their homes, Americans had no choice but to default or sell at ridiculously low prices. With no more home buyers willing to be victimized, the home building companies and mortgage originators began closing their doors, with millions in profits in their pockets. Unable to turn their housing ‘investment’ over, individual home buyers and speculators no longer had hundreds of billions of dollars in profits to sink into their next home purchase or to spend at Home Depot, Lowes, Linens-n-Things, Circuit City and any of the other beneficiaries of a healthy housing market.

Who Won? So, did $1,000,000,000,000 simply vanish into thin air? No. The money’s there and somebody has it. But who? Basically, here are the people that profited the most from the Housing Meltdown:

  • Investors: Small and large investors who backed actual mortgages had their investments guaranteed by the U.S. Taxpayer. They reaped better than average profits from these ‘sure things’.
  • Investment Banks: Each transaction, investment, sale, purchase, transfer and management assignment paid the ‘middle man’, aka Investment Banks, a nice fee. They didn’t care if the mortgages defaulted or not. They made their fortunes by playing ‘middle man’.
  • Small banks and mortgage originators: With all of society pushing for more and larger loans, all of which were backed by Freddy and Fanny, aka the U.S. Taxpayer, small banks and mortgage originators were paid a nice fee for every loan they made to individual Americans. Turning right around and selling the loans to the Investment Banks who sold them to investors, the small banks and mortgage originators had little or no risk, only profit.
  • The corporations that depend on the Housing Industry: Many corporations saw profits skyrocket, such as real estate companies, home builders, electronics retailers, title companies, real estate lawyers, ratings agencies, remodeling contractors, and any other store or business that benefits when a family buys a home.
  • Specific home buyers/sellers: Any individual lucky enough to sell their home just prior to the Housing Bubble bursting, but didn’t reinvest in more real estate, and instead put the money in the bank, made a very nice profit.

Who Lost? Many people lost a fortune in the Housing Meltdown. Here are the most obvious.

  • Individual home buyers: Anyone whose home is now worth less than they paid for it.
  • Investors: Anyone who invested in the unbacked derivatives and Mortgage Backed Securities investment banks created when they ran out of actual mortgages.
  • Entrepreneurs: Anyone who invested in opening a store or business to capitalize on the housing boom, only to have their investment wiped-out when the housing industry vanished.
  • U.S. Taxpayers: The biggest losers of all are the American people. Unbeknownst to the taxpayers, the Democratic and Republican elected officials in Washington D.C. continued to guarantee fraudulent and doomed mortgages. Knowing full well the American people would be on the hook for one trillion dollars, our elected officials did NOTHING to protect us.

Where are we now? Thanks to the U.S. taxpayers, the perpetrators of this grand scheme have mostly been reimbursed, including their outrageous profits, fines and fees. As much as we understand the above series of events, here is one thing we don’t understand.

The typical American home owner owes their local bank/mortgage originator who owes the Investment Banks who owe individual investors and fund managers. The American people have to pay $1,000,000,000,000 to reimburse the losses. But where should the U.S. government inject the one trillion dollars and who should receive the Bail Out?

For some reason, President Bush and the Federal government decided that the American people needed to be punished, literally, and NOT bailed out. Instead of bailing EVERYONE out by injecting the money into the individual home owner, who would pay off their local bank/mortgage originator, who would pay off the Investment Banks, who would pay off the individual investor and fund managers, all while leaving millions of Americans in their homes with their mortgages caught-up or completely paid off, President Bush and the Federal government, backed by outspoken Republican representatives in Congress, insisted that the American people MUST be punished for their greedy, uneducated borrowing decisions.

So, how did the Bail Out happen instead? The American homeowner was skipped and thrown out on the street with a massive debt and millions of unoccupied homes owned instead by corporations and banks. The $1,000,000,000,000 Bail Out was instead given to the Investment Banks who borrowed money from the U.S. taxpayers to bet  on high-payout long-shots, and lost.

Apparently, the joke’s on us, the American People. While our Republican and Democratic representatives, as well as the Wall Street bank employees and executives, are laughing all the way to the bank, the only ones NOT bailed out with the American People’s money were the American People. It didn’t have to happen like that either. The U.S. Taxpayer could have bailed EVERYONE out, kept millions of Americans in their homes and made everyone involved whole without costing a single penny more. But for some unexplained reason, America’s rich and powerful destroyed America’s middle and working class. Why? Ask George Bush. He's the one who asked for and authorized it. Some believe it was for no other reason than the satisfaction and fun of putting even more separation between the rich and everybody else.

The saddest part isn’t that diseased people infected with the sickness of greed ripped off the American People for one trillion dollars. The saddest part is that with the help of the Democratic and Republican Parties, the American people willing sold themselves out.

If you think the above series of events borders on Treason, you haven’t seen anything yet. Be sure to read tomorrow's article detailing America's Economic Meltdown and the cause of the Great Recession. The above only details the events of the ‘Housing Meltdown’. This is nothing compared to the Economic Coup that has just thrown the United States of America into its second great depression and is costing the U.S. Taxpayer trillions more.

Worst of all, when Ken Paulson suspended the U.S. Constitution and gave himself the powers of a dictator without challenge by the American people or their Democratic and Republican elected officials, the government of the United States of America was officially overthrown, not in a military coup like most nations, but in an economic coup by Ken Paulson, Tim Geithner and a handful of others. If you don’t believe it, just wait until you get the multi-trillion dollar bill and can’t pay it. Then maybe you’ll finally believe it. Unfortunately, by then it’ll be too late.

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