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I think you will enjoy this new article from Virtual Citizens titled "On Sub-prime and Spitzer: there is a connection".

The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

While New York Governor Eliot Spitzer was paying an “escort” $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators. Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man, Bernanke, was using ours.

This week (16 March 2008), Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday (12 March 2008), there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer. Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied. How? Follow the money.

The press has swallowed Wall Street’s line that millions of families in the United States are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

Sub-prime 101: profits, fraud, and cover-ups

Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the “sub-prime” mortgage and its variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called “Countrywide” became America’s top mortgage lender, accounting for one in five home loans, a large chuck of these “sub-prime.”

Here’s how it worked: The Grinning Family, with a household income, around $45,000, gets a $200,000 mortgage at 4% for two years. Their $955/month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise is a distant memory (and an unenforceable contract) and the Grinnings are told to scram - because their house is now worth less than the mortgage. Next the mortgage hits 9% or $1,609 plus fees to recover the “discount” the Grinnings enjoyed for two years. Suddenly, payments equal 42% to 50% of pre-tax income and the Grinnings move into their Toyota.

Now, what kind of American is best “qualified” for a “sub-prime” loan? Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of Whites with similar-incomes. Dark-skinned borrowers aren’t stupid - they had no choice. They were “steered” as it’s called in the mortgage sharking business.

“Steering” people into sub-prime loans with usurious kickers and fake inducements to over-borrow, is also called “fraudulent conveyance” or “predatory lending” under U.S. laws. The practices were almost completely forbidden in the olden days (Clinton Administration and earlier) by both federal regulators and under state laws. We called it loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy. The Bush cronies set a mood where it was OK to steer ’m, fake ’m, charge ’m and take ’m. But there was this annoying party-pooper in the new gilded age, the Attorney General of New York, Eliot Spitzer. Spitzer dared the impossible, he sued these guys to a fare-thee-well. Or tried to do so.

When Spitzer filled the air with news that real people, with real mortgages and houses were being fleeced, all the while as Wall Street laundered dirty loans, instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and other folks in states who attempted to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their own consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly, race-based, mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the shark-fest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank. Each made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”

Here is how it worked (on the books anyway): they took a bunch of junk mortgages, like that owed by the Grinnings, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by self-regulating and self-policing bond rating agencies.  These new gold-painted turds were sold as sparkling safe investments to U.S. school district pension funds (and even state-wide funds, e.g. retirement accounts for teachers in NY and California might have lost over $80 billion each with the Bear Sterns melt down) and municipal governments in places as far away as Finland (really).  When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will “earn” a $77 million buy-out bonus this year on top of the $656 million he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry regulators, burned investors, and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf Sheiks, who now control its biggest share blocks.

Then, on Wednesday (12 March 2008), the unthinkable happened. Carlyle Capital went bankrupt. The Carlyle Group, you know with James Baker as Senior Counsel, other notable partners, former and past including: George H. W. Bush, the Bin Laden family, and sundry dictators, potentates, pirates and presidents. The Fed had to act.

Bernanke opened the vault and dumped $200 billion on the poor suffering bankers. The millionaire bankers got public treasure - and got to keep the Grinning’s house. But there is no foreclosure moratorium for the public bail-out. Though not one family was saved - not one millionaire banker was left behind. Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon. And that very same day the bail-out was decided the man called, “The Sheriff of Wall Street” was cuffed. Spitzer was silenced. What a coinkydink!

Do I believe the banks called the U.S. Justice Department and said, “Take him down today!” No, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press like “Wall Street Declares War on Spitzer” made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:

“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which he federal government was turning a blind eye.”

Spitzer said that Bush was the “Predator Lenders’ Partner in Crime.” Spitzer added that “The President was a fugitive from justice.” And Spitzer was in Washington on February 13, 2008, to launch a campaign to take on the Bush regime and the biggest financial powers on the planet. Spitzer wrote, “When history tells the story of the sub-prime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.” But now, the Administration can rest assured that this love story - of Bush and his bankers - will not be told by history at all - now that the Sheriff of Wall Street has fallen on his own gun.

A note on “Prosecutorial Indiscretion.”

Back in the day when I was an investigator of racketeers for government, the federal prosecutor whom I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”

Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.” Funny thing, this “discretion.” For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put diapers on him.  That is gross! Despite that, Senator Vitter was not exposed by the U.S. prosecutors busting the pimp-ring that pampered him.  Naming and shaming and ruining Spitzer - rarely done in these cases - was made at the “discretion” of Bush’s Justice Department.  Or maybe we should say, ‘indiscretion.’

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