Chamblee54

Meat Company Breeding Rats

Posted in Uncategorized by chamblee54 on June 21, 2009

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The financial mess is not over. Perhaps it has bottomed out. (The American people have been bottomed out).The debt will be with us for a long time. The loss of confidence may be permanent. A writer named Matt Taibbi has a couple of posts recently that explain a few things.

The first is about Hank Paulson. He is one of the nameless men who helped to make the dollar worthless. He was the Secretary of the Treasury under George W. Bush. Before that, he was Chairman and CEO of Goldman Sachs. That combination should raise a few eyebrows, but no one noticed at the time.

It seems that in 2004, Paulson played a key role in the relaxation of certain rules governing banks.
“he called up SEC director William Donaldson in 2004 and quietly arranged to get the state to drop capital requirements for the country’s top five investment banks?… Paulson met with Donaldson and got the rules changed so that Goldman and four other banks no longer had to abide by the old restrictions that forced banks to actually have a dollar or two on hand for every ten or so they lent out. After that, it was party time! Bear Stearns in just a few years had a debt-to-equity ration of 33-1! Lehman’s went to 32-1.”
The big banks were lending money to just about anyone who wanted it. So much capital was coming on the market, it was a struggle to lend it all out. The standards, especially for home loans, went down to almost nothing. These loans were packaged and resold, in the form of securities backed by these almost fraudulent loans.

It should be noted that PG is not an economist, and does not understand much of this. If the technicalities are a bit off, then so be it. The bottom line is that the American economy, once the envy of the world, is in tatters.

The second article is about a pseudo apology issued by a money lender. It really needs to be read in full. If you are in a hurry to watch NASCAR, here are a couple of “money quotes“.

“So some Dutch teachers’ union that a year before was buying ultra-safe U.S. Treasury bonds in 2006 runs into a Goldman salesman who offers them a different, “just as safe” AAA-rated investment that, at the moment anyway, just happens to be earning a much higher return than treasuries. Next thing you know, a bunch of teachers in Holland are betting their retirement nest eggs on a bunch of meth addicted “homeowners” in Texas and Arizona.”
Next time, those teachers will look somewhere else to invest their savings.
“Alt-A mortgages are characterized, mainly, by crappy documentation and lack of equity: no income verification, no asset verification, little-to-no cash down…These crap/sham mortgages, a lot of them adjustable-rate deals with teaser rates that featured sudden rate hikes two or three years after closing, they would never have been possible had not someone devised a method for selling them off to secondary buyers.”

“This isn’t really commerce, but much more like organized crime: it was a gigantic fraud perpetrated on the economy that wouldn’t have been possible without accomplices in the ratings agencies and regulators willing to turn a blind eye. Imagine a meat company that bred ten billion rats, fattened them on trash and sewage, ground their bodies into chuck, and then sold it all as grade-A ground beef to McDonald’s and Burger King, right under the noses of the USDA: this is exactly the same thing, only with debt instead of food. We’re eating it, they’re counting the money.”

PG was still working while a lot of this was melting down, and in those days listened to Neal Boortz. Neeyull blamed the sub prime mortgage crisis on the government pressuring lenders to give loans to less qualified buyers. This argument is dissected in the comments to this post.

Back to Neeyull, PG was listening one day when an “expert” was discussing the mortgage crisis. PG has neither a name nor an exact quote, as he was driving at the time. Neeyull mentioned that Government pressure led to loaning money to less qualified people. The expert said that was part of it, but the real problem was the flood of capital available to lend. The banks were under pressure to loan the money out as quickly as possible, and not to be too picky about qualifications.

We will be paying for this for years to come.

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