If I were to say that I think our government is corrupt, I don't think anyone would argue. At least, not with the conviction that they're arguing a valid point. True, there are different levels of corruption, and our government hasn't sunk to the depths of some foreign governments I could mention. But the corruption is there, all the same. Only we like to call it "lobbying." Rich corporations and individuals hire persuasive people to ply our government leaders with gifts and smooth talk in order to convince them to enact laws that favor those corporations over the common citizen. It is only when a more powerful lobby comes along that the power of one corporation is dwarfed by another, or when public outcry becomes vocal enough to demand a change in the form of ousting unpopular politicians at the polls.
Democracy still works in America, though the American public has been convinced over many years that it does not. That, too, is the work of lobbyists. The most blatant example of the power private business has over our public government came in the form of the 700 billion dollar bailout of the banks, done in order to "save" us from the so-called mortgage crisis.
Here's what happened. Some whiz on Wall Street got the bright idea to start selling mortgages in bundles and billing them as "investments." This came about because the IMF, the International Monetary Fund, decided that it wasn't doing the world any good having all that money sitting there waiting to be used, it would best to invest it. But invest it in what?
Oh, what is the IMF? Think of it this way: When you get your paycheck, you deposit it into your bank. Your bank will make loans to people, charging interest, based on the funds they have available. Funds deposited by people just like you. But what happens when your bank doesn't have enough money to lend out? What happens if they’ve loaned out their money and you want to make a withdrawal? Easy, they borrow from THEIR bank.
There is a system of banks that cater only to other banks, and a system of federal banks that cater to them. That's the Federal Reserve System, what you might have heard referred to as the FED. The Chairman of the FED sets interest rates on the loans the Federal Reserve System makes to banks when they need to borrow money. Those banks charge interest to the banks THEY loan to, and your bank charges interest on the loans it makes to ordinary people like us. While you pay nine percent on your house loan, on up the line the FED is charging about one percent interest. Everyone makes a profit.
What does this have to do with the IMF, you ask? Well, who do you think governments borrow money from when they need it? That's right, the IMF is the bank that all governments bank at. Now, the annual budget in the US is around three trillion dollars. Trillion, with a "T." A trillion is a thousand billion, and a billion is a thousand million, and...you get the idea. It's a LOT of money. And that's just the US. Worldwide, the amount of money flying around is mind-boggling.
So, the IMF decides it wants to invest, and here are these little mortgage bundles ready for investment. You can see now, I think, why the "mortgage crisis" was a world-spanning problem.
At first, the mortgage bundles contained only the regular, every-day mortgages. The kinds banks have been handling since forever. But the IMF had a whole bunch of money to spend, and they weren't the only ones who wanted in on the lucrative deal. Pretty quickly, the number of investment opportunities began to dwindle. There were just so many mortgages to go around. So, being the enterprising people that we are, someone came up with the obvious solution. Make more mortgages.
Offers for house loans proliferated. Interest rates plummeted. Offers became too good to pass up. No down payment, no closing costs, no hidden fees. It was like the banks were just giving away houses. Some companies sprang up just to make more mortgages, the most famous of these being one called Countrywide. Their ads were everywhere, and people flocked to them to buy a home. Didn't make much money? That's okay, you can still get a house. Promises were made that were never intended to be kept. Millions of people bought homes who shouldn't have. The banks and companies making the mortgage loans didn't care. They just sold the mortgages as soon as they could, and it wasn't their problem anymore.
The people buying the loans, maybe they knew the mortgages were toxic, maybe they didn't. They, in turn, sold the mortgages in bundles higher up the foodchain, where eventually the Big Boys invested in them. Not only the big banks, either, it was investors everywhere. Pension plans were the saddest victims.
In order to afford to make payments to all retirees, most pension plans invest their money. The returns they get swell the pension coffers and make it possible to send checks to the retirees who have earned it. Mortgage bundles were advertised as stable, safe, long-term, high-yield investments. They were, too, at least in the beginning.
But as greed took over, as loans were increasingly made to people who could not afford them, the mortgage bundles became more and more unstable. Many people who took out a loan were shocked to discover they had balloon payments to make, or that their interests rates went up along with their monthly payments. They began to default on their loans. Banks began to foreclose.
Normally, when a bank forecloses on a house, it represents a small fraction of the total house loans that bank has made. Banks make back their money by selling the house on the open market. Essentially, they transfer the mortgage to a new person. But that only works when there is a market for new homeowners. As more and more houses were foreclosed upon, the market became flooded with available houses while the pool of potential home-buyers dwindled drastically. The law of supply and demand ensures that when there is an abundance of a product, the value of that product goes down. Houses were no longer worth what they were originally. Banks were hemorrhaging money.
As this crisis swelled, investors began to jump ship. The big banks who now owned all of these toxic mortgages were left holding the bag. And here is where the government bailout was justified. If the big banks failed, we were told, it would destroy our economy. The little banks would be bankrupted in a chain of implosions; the same interconnectivity that made the entire banking system work would destroy it. That would leave us, the people, in a world of trouble.
So, says the government, here's 700 billion dollars to fix the mess. Thank you, said the banks, and went right on foreclosing on houses. Now they could afford to. Now they could absorb the loss of all those investments and it was business as usual. Except...
People were losing their homes. Us, the people, whom the government is supposed to serve, we were being shafted. The downturn in the economy was devastating. Yes, the big banks survived quite nicely, and so did many of the banks down the line. The little banks, the local ones, a lot of them suffered, caught with mortgages they couldn't do anything with. No bailout for them. As the economy suffered, the damage spread. Businesses had to lay off workers or close their doors entirely. Without paychecks, people who otherwise afforded their mortgages could no longer do so. Because of toxic mortgages, non-toxic ones became victims of foreclosure.
The question I have to ask is, what did our 700 billion actually buy? When you pay money, you expect something in return. Right? In my opinion, simply handing that much money over without strings attached was monumentally irresponsible. That was OUR money, the American public's. WE should have benefited. The government should have bought those mortgages. People should have kept their houses. The simple solution would have been to take over the mortgages, adjust payments so that people could actually afford them, and everyone could have benefited. The government was ALREADY in the business of making mortgage loans in the form of Freddie Mac and Fannie Mae.
Fannie Mae, or the Federal National Mortgage Association (FNMA), along with Freddie Mac, are two privately traded companies started by acts of Congress and specifically mandated to stimulate and manage the mortgage backed securities market. Mortgage backed securities is a fancy way of saying mortgage bundles, the same things that started the mess requiring the expensive bailout. Essentially, Fannie Mae and it's little brother Freddie Mac don't make loans directly to the public, but they do buy mortgages from banks once the banks have given the loans. That was to free the banks to make even more mortgage loans.
So instead of just handing the banks free money, the government should have purchased the mortgages and given them over to Fannie Mae to manage, then mandated that Fannie Mae do what it could to keep people in their homes. Naturally, not everyone who got a mortgage deserved to stay in their home. If you moved yourself into an expensive home knowing full well you couldn't afford it, then you need to move out and find someplace affordable to you. If, on the other hand, you purchased your home under the assumption that payments would be within your means, only to discover later that your mortgage had been sold, then resold, and the new owners had no idea that you were supposed to have a "deal," then whose fault is that?
Most people, I'd be willing to bet, didn't know that the bank could sell your debt to someone else. I know that I always assumed that my loan with the bank was between me and the bank. Period. But really what you do when you take out a loan is sign a contract, and a contract can be treated like a commodity. It can be bought and sold, which is exactly what these banks did with all those mortgages. Banks and other companies made mortgage loans knowing full well that the people they were selling to couldn't afford them. Yet no one has ever been punished for this fiasco. No, instead our benevolent government bowed to the will of the rich owners of the banks and handed over OUR money to help them out of the mess THEY created.
The purpose of a democratic government is to serve the majority of its people to the best of its ability. The 700 billion dollar bailout of the banks served an elite minority while condemning the majority of Americans to years of economic hardship and sentencing many homeowners to homelessness. Yes, the banks were saved and the trickle down effect was preserved...but at what price? Was it really worth it? And could it have been handled better?
It is the duty of every patriotic American to question the means and motives of government decisions, and it is the duty of public servants (that, after all, is what Senators, Congressmen, and even the President are) to watchdog the interests of the majority, not just those who can afford to show up in Washington and woo them with food and wine and gifts and silver-tongued promises.
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