Repeal- Gramm-Leach- Bliley Act 

 

By Dave Page

Edmonds Realty

 

The Gramm-Leach-Bliley Act is the vehicle that the big banks used to create mortgage-backed securities and sell them in packages called CDO's.

 Yawn who cares right? Wrong.

The banks discovered that they could sell you a mortgage without any real qualifications on your part and then resell it quickly to a third party without taking on any risk themselves. What a deal, the primary lender took no risk. You state that you are an executive down at the car wash earning $200'000 per year and you need a $600'000 mortgage. Ha!

No problem, lender looks the other way ups your fees that were rolled into your zero down loan anyway and you are in business. That is until you can't make your $4,000 per month mortgage payment. Some lenders offered loans at 125 percent of value, Why not? The market appeared to be going up forever and because of the new law banks could move their liability.

The rating companies wanting to get in on the fees rated these risky loans as 4 star securities. Everyone was buying mortgages, mutual funds, pension funds, overseas investors – basically, a bonanza for lenders. The Chinese purchased trillions of dollars worth.

The up shot of all this is that when the market crashed all the purchasers of these mortgages found out that they were holding a bunch of really shaky paper. No one would buy anymore mortgages, the market continues to crash, foreclosures are at an all time record high.

Banks and mortgage companies are failing everywhere. There is no end in sight. Several of the biggest banks in the country, Bank of America, Citibank (not the local Citybank) and Chase Manhattan have been buying and merging with other banks that would otherwise go out of business.

When Bears and Stearns got into deep do-do there was no-one willing to step up. They were about to go down in a very ugly way, possibly creating a huge run on the banking industry.

Washington Mutual looked to be the next to fall – then, believe me, all hell would break loose.

             Here is where we come back into the picture: The Federal Reserve using tax payer guaranteed money came in and pledged 200 billion to prop up otherwise failing banks. J.P. Morgan stepped in with a guarantee and bought up Bears and Stearns for a couple of pennies on the dollar.

The kiss off for us is that the $200 billion was guaranteed with more of those same counterfeit mortgages. We took phony money to guarantee a phony debt. It would be hilarious if we could get away with it, but we won't.

The Federal Reserve, without tax-payer approval has taken public money to bail out private banks that otherwise would and should go broke. 

The banks have proven that they must be regulated. Their greed and deception has cost us plenty - as witnessed by the plunging stock market the plunging dollar and plunging home values.

We will recover. Part of that recovery must be to repeal the Gramm-Leach-Bliley Act.

 

Footnote: The FHA has steped up to guarantee loans to 97% of value and refinance to 95% of value.  No more looking the other way.