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We Are the Government and We Are Here to Help

I’m the last guy to suggest that the current mortgage meltdown is solely the government’s fault. I believe that borrowers, lenders, investors, and regulators are all culpable in this mess. However, our government is supposed to provide a safety net, and the story below shows us that the government was sleeping on the job.

Not many of you will remember the S&L crisis a few decades ago. Back then, there were 200 FBI agents assigned to mortgage fraud cases. During this last real estate boom, there were 100 agents on the trail of fraudsters. In fact, the FBI asked for a bigger budget for such things and they got even less than they originally had.

This points out one — of MANY — opportunity costs that fighting three wars presents (Iraq, Afghanistan, the War on Terror).

We simply chose to provide funds to fight wars rather than regulate our markets. This is not a judgment; it’s a fact.

Much of the initial “sub prime” issue arose because of wanton fraud by both borrowers and lenders. Mortgage banks duped investors who bought the “securitized” mortgages, but investors should have known better.

FBI saw threat of mortgage crisis – Los Angeles Times

Officials said they began approaching mortgage companies and others in an attempt to raise awareness about the growing fraud problem. But the lenders had little incentive to cooperate because they were continuing to make money. Black says that in many cases, they were part of the fraud.

At the end of the day, it was all about greed: Borrower, lender, and investor greed. Greed is not one of the seven deadly sins for nothing!

Wachovia, WaMu in Big Trouble

WaMu, Wachovia swim in deep end of mortgage poolThe Mortgage Meltdown is in full bloom. Big banks and mortgage players are really sweating it out. A couple CEOs have stepped down and/or lost their jobs. Read here for more about Wachovia, WaMu still in big trouble according to MSN Money.

These two banks are in the deep end of a pool and they don’t know how to swim. I just hope that the employees who had nothing at all to do with this don’t lose their jobs.

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Wall Street Math: -1 -1 = 2

Investment Bank New MathEnron and WorldCom scandals aside, Sarbanes-Oxley in place to ensure that none of those shenanigans take place again, Wall Street bankers (you know, those guys who either caused, exacerbated, or did nothing about the Mortgage Meltdown, have chosen to exploit a little-known accounting trick that allows them to record as appreciating assets those loans they’ve made that have turned south.

It truly is a case of -1-1=2.

The rule, intended to expand the “mark-to-market” accounting that banks use to record profits or losses on trading assets, allows them to report gains when market prices for their liabilities fall.

The FASB rule (the “governing” board of the accounting profession) went into effect after investment banks and other financial institutions lobbied the group for a rule change.

The rule was enacted after lobbying by New York-based companies, led by Merrill, Morgan Stanley, Goldman Sachs Group Inc. and Citigroup, which wrote letters to FASB arguing that it wasn’t fair to make them mark their assets to market value if they couldn’t also mark their liabilities.

It’s a perverse outcome of the continuing mortgage debacle. Using the rule certainly doesn’t make the problem go away, but it surely makes it look a little rosier than it really is.

The “transparency” that Sarbanes was supposed to foster has been distorted time and time again by those clever gents in their 3-piece Armani suits. Gotta love capitalism!

Read the whole store here Bloomberg.com.

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Ed McMahon Facing Foreclosure

Tonight Show's Ed McMahon facing foreclosureEven Johnny Carson’s sidekick and long-time peddler of Publisher’s Clearing House, Ed McMahon, is being affected by the Mortgage Meltdown. His Beverly Hills house, which has been on the market for over 2 years, has entered the beginning stages of the foreclosure process; McMahon has been served with a default notice.

Apparently, he is in arrears of $660,000 on a $4.8 million loan.

Report: Ed McMahon’s home faces foreclosure – CNN.com

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