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Gary A
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I am retired from Fresno County. I like to blog and comment on financial matters. I knew of the housing bubble in late 2005, way before Cramer. I believe that the central banking establishment set up excessive and damaging credit vehicles both for investors and for borrowers. Investors were... More
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Will Rogers:From Great Depression to Great Recession
  • I Know What the Next Bubble Could Look Like and the Tea Party Needs to Pay Attention 0 comments
    Jan 24, 2011 12:00 PM | about stocks: WFC, C, BAC, JPM, GS, GOOG, FOX-RETIRED, FNMA, FMCC
    I have written articles about the efforts by Basel 3 to control Fannie and Freddie in an effort to force the government to guarantee all loans. It is a simple procedure, really. They just buy Fannie and Freddie bonds and make those bonds part of the Tier 2 capital structure. Any destruction of the loan guarantee that underpins that Tier 2 edifice will trigger an instant banking crisis.

    Now that the Tea Party is becoming politically influential, there may be a push to substitute private banks for Fannie and Freddie. A lot of business would go to Wells Fargo and the other TBTF banks and the central bankers want certain guarantees in that arena as well. 

    As Basel stays a step ahead of the politicians, Wells Fargo has come out and advocated that all loans, regardless of quality, be guaranteed by the government. This includes loans that would be purchased by the TBTF banks in place of Fannie and Freddie, thus shrinking the influence of Fannie and Freddie. Wells Fargo actually has held the politicians hostage, warning them that the demise of the 30 year mortgage will be the result of their interference in loan guarantees for every mortgage.

    Ok, Tea Party, most of the movement worships at the feet of the private banks, while hating Fannie, Freddie, the CRA and the Fed. My argument all along has been these are all in collusion against the borrow, taxpayer and sovereign nation of the United States. But the big lie has been that the private banks are the victims of the CRA, of Fannie and Freddie, and were forced to take over bad actors like Wachovia. But if they are victims, why are they getting bigger, and why are they becoming even more greedy in their attempts to survive no matter how that affects the nation or the taxpayers?

    The truth is, the shadow banking system was created at Basel 2, with off balance sheet banking being a central foundation of that system. The central banks looked the other way when a homeless guy got four no-money-down mortgages, as this private shadow/investment bank scam took off in mid 2003. Tim Geithner was named president of the Fed in late 2003 and looked the other way as this system, which was bigger than the CRA and Acorn, by far, took over the mortgage process.

    Even Fox News let Geithner off the hook because little was made of this private securitization practice, and much was made of the CRA/ACORN side show. The only reason Geithner would have been let off the hook was if Fox found no fault in him and in the bubble. Even John Stossel admits that the CRA was a side show, while talking about it far more extensively than of the private, Geithner guided private MBS scheme that took over in mid 2003.

    It is interesting to note that the big banks cry moral hazard when anyone suggests that homeowners be bailed out yet think nothing of creating massive moral hazard for the taxpayer and the borrower when seeking to get all mortgages guaranteed. This political hostage taking is moral hazard. The bubble of the future could be one where all loans, no matter how bad, get inflated ratings because of the guarantees.

    Whereas the last bubble hit investors with many loans that were not guaranteed, the next bubble will have the guarantee that investors require. The risk will fall to the taxpayer, as the easy money machine will ramp up one more time. And the borrower will be prey to the risk of easy money loans that will be one more time doomed to failure as they are written.

    And the thing that amazes me is that most people don't care, don't have a clue, and even the Tea Party people are going to either be a part of this scheme or will get blindsided. Fox News has not reported on this, or at least I can't find it on Google. They must know that Wells Fargo has attempted to extort the taxpayer, but either they don't follow the news (which is an absurd idea) or they are keeping silent on purpose.

    I personally believe that bubbles pay for wars and the old John Birch society talking points that seek conflict with Russia have been seen on Glenn Beck recently. As he glorifies McCarthyism, Beck is setting the stage for wars that can be fought indefinitely as long as securitization of crap loans pays for it.

    After all, Iraq was paid for by the first housing bubble. When Alan Greenspan advocated getting a better deal with adjustable mortgages in February, 2004, the Fed and the central banks showed their hand. This same Alan Greenspan advocated the taking of the oil ministry in Iraq first thing. It was in his book! There is a connection.

    I have argued that there is a new world financial order, but that it is a corporatist order, similar to the ideas expressed by Ron Paul. The Tea Party, with influences by the Koch Brothers, sons of a John Birch cofounder, have lied about this order, making it out to be a communistic order.

    While on the surface this would seem to be hair splitting for me to contend their position, it is most certainly not hair splitting. Here is why. Communism socializes profits and socializes losses. We don't have that. Roubini is correct. The system we have privatizes profits and socializes losses. That can't be communism. It can be corporatism. I repeat, that cannot be communism.

    I think Beck and the Koch Brothers have an ulterior motive in their quest to pin our financial problems on communism. And they should be exposed for that dangerous thinking. If you don't worry about World War 3 then maybe you don't think they are dangerous. I am not for shutting them up, but I am for an equal airing of the truth. As Beck's talking points become reality for so many, war fever and securitization seem to meld and you can't have one without the other.

    America is entering a very dangerous period in her history. Are these madmen who are running the nation really concerned with national security or are they concerned with world domination? And do they care about a little moral hazard as they allow mainstreet and taxpayers to be pillaged while they have an eye for hatred of communism and the reestablishment of the Cold War? Of course not. This financial/energy/military cabal has an apparent passion for destruction. It is a pretty dangerous form of mercantilism.

    I am not saying that the John Birch/Tea Party ideas will win out. Certainly cooler heads could prevail. But it all starts with toning down the securitization process, as that process gives the United States a lot of muscle, and is the steroid of war, to be sure. If our military is truly interested in stability and security, perhaps they could suggest to our politicians that these continued attacks upon taxpayers and borrowers is not ultimately in the national interest.

    We should be able to tell a lot about our nation's lust for war and uncertainty in the future based upon the direction of the securitization process, specifically regarding home mortgages. A policy that favors the banks and that puts the taxpayer in jeopardy is a policy that favors war and destruction. Something to think about anyway, isn't it? Too bad few in America are thinking about it.




    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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