Friday, January 22, 2010

Greed hurts all but the greedy

By Don Klein

Imagine yourself a school bus driver with a second job as a newspaper route delivery driver. Your wife works as a kitchen helper at a local hospital. You have three kids and you want the best for them. You see a $650,000 house you would like to move into but cannot afford.

Surprise, the sales agent puts you in touch with a banker who says he will lend you the money and you only have to pay the interest for a number of years while you improve your earnings to eventually handle the principal. You ignore the obvious pitfalls because you are either brainless or terribly hungry for a better life style.

In your foolishness you fall for such a gambit, but the real estate seller and the banker know what the score is. They are shrewd. They are downright crooks who know how to make money even though they are convinced you’re destined to default. They have a plan.

The salesman gets his commission for selling the house, the banker meanwhile takes your feeble mortgage and packages it on Wall Street with thousands others just likes yours. They then sell a whole package of loans at an appealing price to investors – many of which represent pension funds and important charities. That becomes the recipe for a financial crisis.

The real estate sales person and the banker know there is trouble ahead, but they will make their profits passing off the package and sticking it to investors. When the day of reckoning comes and a bubble payment is due, you, the homeowner, will rely on your our little plan. You will sell the house you never could afford but lived in for years and make a solid profit considering the normal ascent in home prices.

Alas, the day comes and the real estate market collapses. You can’t sell your house and the mortgage is in default. At the same time neither can the thousands of others whose mortgages were sold when you took out the loan. The result: An international financial crisis unlike anything seen since the Great Depression. The guilty: The home buyers and sellers, and worst of all the bankers who put up the money for the loans that should never have been made.

You did it because you wanted a better life style for your family and yourself.
The seller was willing to complete the sale because the banker was willing to put up the money and Wall Street was taking the financial risk. The toxic package was passed off to the oblivious investor. None of this would have happened if anyone along the way had a modicum of integrity.

In the end it was the banker who made it all possible. It was the banker who tried to outsmart all others for his gain, and his enhanced year-end bonus. The more mortgages he sold, the more the payoff and to hell with the home owner who defaulted and the pension funds now holding worthless stock.

The banker is the culprit in the financial crisis smothering the global economy for nearly a year and a half. This scenario demonstrates the power of greed. Greed is as normal to a banker as counter clockwise motion is to flushed toilet water. It’s incontrovertible. It cannot be altered.

The 1987 film "Wall Street" spelled it out clearly when the fictional Gordon Gekko expressed the well recalled stock manipulator’s philosophy, "Greed is good."

Greed has become the epithet for Wall Street bankers. It is their synonym like Homosapien is the synonym for the species of man. After the recent testimony of four top bankers before the Financial Crisis Inquiry Commission in Washington we can now add "ingrate" to define Wall Street money changers. It’s no wonder their predecessors were chased from ancient temples.

At one point in the testimony the head of Goldman Sachs had the nerve to liken the hellish recession to a Hurricane and other manifestations of rampaging Nature. Phil Angelides, the commission’s chairman, couldn’t let that go unanswered. "Acts of God we’ll exempt. These were acts of men and women."

The commission is investigating to determine if the Wall Street insiders intentionally put the bad assets together and passed them off as healthy investments even when they knew better. All the bankers managed to say was they "regret" people lost money in these transactions. No apologies offered.

The banks under scrutiny at the hearing besides Goldman Sachs were Bank of America, JPMorgan Chase and Morgan Stanley. They all received bailout money from TARP and have already repaid some of the loans. But worst of all is their bonus programs. Billions are disbursed to employees of the banks who benefitted from federal funding assistance to make their year a profitable one.

The bankers never admitted that they had any responsibility for the garbage assets they peddled on the market. They were just interested in moving the rotten goods out of their store and making a profit like an avaricious grocer selling baskets of rotten tomatoes. When the banks recovered thanks to taxpayer funds, they moved to "reward’ their top executives with millions of dollars in bonuses.

John Taylor, president of the National Community Reinvestment Coalition, made one of the most pointed comments at the end of the hearing. "If the leaders of Wall Street did not consider the possibility of housing prices dropping" through their own experience, nor all the red flags raised about mortgage fraud for years and did not realize that high cost, interest-only loans were being made "then their spirited defense of their employees falls flat."

"Based on what we heard today," Taylor concluded, "they should be firing people not giving them bonuses." Amen.