I feel like a total idiot for not thinking about this before. I started reading The Creature on Jekyll Island, a book about the Federal Reserve, but got bored 1/4 through. But without knowing what these guys do, and understanding their motives, we lose one very important factor in predicting the economy.
The big banks, like Citibank have pawned off their mortgages into the MBS market. See their Annual Report. “The Company’s mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust.”
Citbank has a total of $163 B in fixed income securities, of which $13 B are MBSs, which they state are mainly GSE. If I understand their statements correctly, they have only $8.5 B in retained interests in mortgages. On the other hand, they made $24 B in profit in 2005. So, even if they lost their entire mortgage portfolio, and nobody paid back a penny, they would still have had $16B in profits – roughly.
So the big banks are not dependent on mortgages? They’ve pawned them all off on the public – their balance sheet also shows they *originated* $131 B in real estate loans.
Forget about the banks like WaMu, which could fold when the bubble collapses, and someone like Citibank, international banks, or the East-Coast money center banks will buy them up for pennies on the dollar. The large banks that have big mortgage exposure will be easy acquisition targets for the banks which really control the banking system (and our economy).
Why are there so many secrets in banking, about the Federal Reserve, about the money supply? Why are we never told by our government about the true inflation, about how much money is issued (M3 growth no longer published), who are the member banks? But mainly, why are we, including me, so intellectually lazy as to not question the role of the Federal Reserve, and realize they are not federal at all!
Now, here’s a little conspiracy theory. Consider the possibility that the rich want to get richer. I think we can agree that is a realistic motive. So they will come out ahead when this housing bubble busts. They will end up with more property and lease it to the poor.
After this housing bubble busts, we’ll see millions of foreclosures. The rich (banks or investors) will buy those homes for pennies on the dollar, while the former homeowner turns into a renter.
My friend suggests this is how they do it:
“But there is a problem – how do you take homes away from the people? Well – I think this is a pretty clever solution, let people mortgage their house by giving them 5% interest rates on their homes, plus a tax deduction, whilst they pay 23% on credit cards (after the 2% teaser rates expire).
So if you, say, had a strategy to get your hands on people’s homes in the US, and you were rich and powerful, how might you do it?
– get people into deep debt using teaser rates and lowering lending standards
– raise the rates
– create a housing bubble
– crash the housing bubble
– increase unemployment
– change the bankruptcy laws so they can’t walk away from the debt
– start buying houses when the prices drop”
As I am typing this, my TV is on, and some simple talk show is going on and on about trivial news: how to avoid flus, how to decorate for Christmas, gift giving, the weather. Useless drivel. Meanwhile, the broadcasters don’t show the truly important stuff, like helping us learn how the Federal Reserve really works. Don’t they know? Do they think we wouldn’t understand? Are they afraid to expose the scam?
I feel like such an idot for not realizing this sooner.
