Greg Palast: Bail-out for predator banks and Spitzer charges are intimately linked


Richard Moore

Date: Fri, 14 Mar 2008 11:15:48 +0100
From: Greg Palast <•••@••.•••> (by way of Prospective 
Subject: Eliot's Mess and the $200 Million Bailout

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

By Greg Palast
Reporting for Air America Radio's Clout

Listen to Palast on Clout at 

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, 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, 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 US families 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.

Here's what happened. Since the Bush regime came to power, a new species of loan
became the norm, the 'sub-prime' mortgage and it's 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 US average household income, 
gets a $200,000 mortgage at 4% for two years. Their $955 a 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 ain't worth a can of
spam and the Grinnings are told to scram - because their house is now worth less
than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the 
"discount" they had for two years. Suddenly, payments equal 42% to 50% of 
pre-tax income. Grinnings move into their Toyota.

Now, what kind of American is 'sub-prime.' Guess. No peeking. Here's a hint: 73%
of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 
17% of similar-income Whites. Dark-skinned borrowers aren't stupid - they had no
choice. They were 'steered' as it's called in the mortgage sharking business.

'Steering,' sub-prime loans with usurious kickers, fake inducements to 
over-borrow, called 'fraudulent conveyance' or 'predatory lending' under US law,
were almost completely forbidden in the olden days (Clinton Administration and 
earlier) by federal regulators and state laws as nothing more than fancy 

But when the Bush regime took over, Countrywide and its banking brethren were 
told to party hardy - it was OK now to steer'm, fake'm, charge'm and take'm.

But there was this annoying party-pooper. The Attorney General of New York, 
Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush's regulators went on the
warpath against Spitzer and states attempting 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 consumer protection laws.

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

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 sharkfest: Goldman 
Sachs, Merrill Lynch and Citigroup's Citibank made mortgage usury their major 
profit centers. They did this through a bit of financial legerdemain called 

What that means is that they took a bunch of junk mortgages, like the Grinnings,
loans about to go down the toilet and re-packaged them into "tranches" of bonds 
which were stamped "AAA" - top grade - by bond rating agencies. These 
gold-painted turds were sold as sparkling safe investments to US school district
pension funds and town governments in 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 - over half a billion dollars - 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 

Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went 
bankrupt. Who? That's Carlyle as in Carlyle Group. James Baker, Senior Counsel. 
Notable partners, former and past: George Bush, the Bin Laden family and more 
dictators, potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the 
poor little suffering bankers. They got the public treasure - and got to keep 
the Grinning's house. There was no 'quid' of a foreclosure moratorium for the 
'pro quo' of public bail-out. Not one family was saved - but not one 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 - what a coinkydink! - the man 
called, 'The Sheriff of Wall Street' was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, "Take him down today!" Naw, 
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 - one was "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."

Bush, said Spitzer right in the headline, was the "Predator Lenders' Partner in 
Crime." The President, said Spitzer, was a fugitive from justice. And Spitzer 
was in Washington 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 subprime 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 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 him diapers (ewww!), yet the 
Senator was not exposed by the US 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.'


Greg Palast, former investigator of financial fraud, is the author of the New 
York Times bestsellers 
Madhouse and 
Best Democracy Money Can Buy.

Hear The Palast Report weekly on 
America Radio's Clout.

And next Wednesday March 19, join Palast and Clout host Richard Greene on a 
dinner cruise on the Potomac River. For more information click 

And this Sunday, at noon, on WABC-TV New York, catch Amy Goodman, Les Payne and 
Greg Palast on Like It Is with Gil Noble.

newslog archives:

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The Post-Bush Regime: A Prognosis

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