A mortgage crisis still haunts the country like a credit collector calling you daily about your unpaid Visa bill. It’s harder to get a mortgage than it has been in the memory of anyone living. The banks “only accept the best credit now for a loan,” a mortgage broker told me. She enjoyed the business at the height of the boom, making up to $20,000 on every “deal,” but has since gone into catering.
The mortgage crisis has laid bare the corruption of banking. More Americans now are aware of the Keynesian debasement of the currency by Fed Chairman Alan Greenspan and Ben Bernanke—and of Bernanke absurdly holding interest rates close to zero, discouraging the savings that are the foundation of any true prosperity.
Then there are the politicians. Republicans promoted easy money to advance George W. Bush’s “ownership society,” believing that a mortgage led to upward mobility and guaranteed Republican votes. Democrats pushed the same gimmicks as rewards to the poor and minorities.
The correction has just begun. “There have been a lot of adjustable mortgages originated in 2005 and 2006 and early 2007 which are supposed to be refinanced in 2011 and early 2012,” Esmael Adibi told me. He’s an economist at Chapman University and coauthor of their annual, and accurate, economic forecasts. “These homeowners are upside down and with tight underwriting standards will not be able to refinance and in all likelihood will default. This, of course, increases foreclosure activities and could negatively affect home prices.”
A good deal of the destruction of the mortgage market was caused by the repeal of the Glass-Steagall Banking Act of 1933 by the Gramm-Leach-Bliley Act of 1999. Sen. Phil Gramm (R-TX) has since become vice chairman of the Investment Bank Division of UBS AG, the gigantic Swiss bank. Nice racket, if you can get it.
Whatever its defects from a free-market standpoint, Glass-Steagall was a sensible regulation to prevent the centralization of banks and credit that followed the creation of the Federal Reserve Board in 1913.
Glass-Steagall’s main effect was to separate investment and commercial banks. It meant the gambling known as “investing” was separated from the sensible business of local banks loaning to local folks. This separation prevented, or a least made difficult, such con games as mortgage “credit-default swaps.” According to one definition, “In its simplest form, a credit default swap is a bilateral contract between the buyer and seller of protection.” Translation: It’s just a fancy organized-crime “protection” racket.
The repeal of Glass-Steagall also accelerated the centralization of banking, which took off at rocket speed after the September 2008 panic. Bankers used to be local men who judged prospective mortgages based not just on financial factors but on a man’s character. A man might take out a large unsecured loan to pay for his mother-in-law’s cancer operation. If his character was good, then the bank knew he would do whatever was needed—work a second job, sharply cut expenses—to pay the loan back.
The banking industry has largely been consolidated into four “Superbanks.” They don’t care about your mother-in-law or your sterling character. They just look at that occult number, your FICO score, which ranges from 350 (deadbeat) to 850 (Croesus). Oh, and on that nice credit card they give you, if you miss a single payment, your interest rate is 30 percent—for money on which they pay near 0 percent.
The Superbanks are so powerful that they essentially own the government and the economy. That’s why they got the TARP and Obama bailouts—money they used to devour more small banks.
The Dodd-Frank “reform” enacted in 2010 was a massive fraud, as William J. Quirk detailed in these pages (“You Call This a Financial-Reform Law?,” News, October). I would add that Sen. Chris Dodd (D-CT) got favorable treatment for a loan from Countrywide Financial, a firm he regulated as chairman of the Banking Committee.
Some good has come from the mortgage crisis. Americans, especially young people, are more frugal and are saving more, despite the near-zero interest rates. The delusion of “home” ownership being essential to the good life has been dulled. People are questioning the banks, including the bank of banks, the Federal Reserve.
There is some movement in Congress to bring back Glass-Steagall. The Superbanks oppose it. What’s needed is another Andy Jackson. It’s even more true today what Old Hickory shouted at the banksters of his day: “You are a den of vipers. . . . If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.”