After listening to all manner of explanation's on how this second massive bailout is good or bad, necessary or not, what it will or will not do, I finally understand the mechanism behind it all.
Apparently:
Congress made a bunch of new laws in the 1990's that our first "black president" Bill Clinton wanted, to loosen up the regulations that controlled banks and how they loaned money for mortgages, laws that would allow uneducated, lowpaid, totally unqualified and irresponsible dead-end job kinds of people to buy fancy new homes, laws that allowed ARM's with hidden killer interest clauses a bit too complicated for the potential borrower to understand, zero down payments, no verification of the borrowers ability to pay back the loan, no checking of the facts - or lack of - on the borrower's mortgage application form, such as job, salary, credit or criminal history... You know, the stuff we had to provide.
Under these new laws, the banks made a bunch of really, really bad loans for mortgages we like to refer to as "sub-prime" mortgages. They made literally millions of these SPM's because they knew they would be able to sell these soon-to-be "toxic" mortgages to places like Fannie Mae and Freddie Mac, mortgage "giants" like Bear sterns, Lehman Brothers and AIG, institutions that have been described as "to big to fail". Interesting thing about all this... Fannie Mae and Freddie Mac were required to buy these worthless pieces of paper by order of Congress, while those institutions "too big to fail" jumped in willingly to "cash in" on the supposed bonanza. Greed and avarice will cause the strangest things to happen.
Inevitably, these thousands and thousands - and thousands - of totally unqualified mostly minority borrowers got behind on their payments, some from day one, and found themselves foreclosed on and booted out. In the real world, the vast majority of them would not have ever qualified for a home loan -and they knew it - so it was more like a few months of free rent.
The Congress, the banks, the mortgage giants, all those subprime borrowers, were scamming us. They knew it, we didn't. We weren't even aware of it, other than the fact that the new home construction industry was booming and that all those new homes seemed to be pretty fancy upscale places we drove by and admired, but couldn't possibly afford. I found myself wondering, in a world where good jobs were vanishing, factories and industries were being shipped overseas lock, stock and barrel, a world where millions of illegals were taking jobs away from Americans and working for less... Who were all the folks prospering so much they could afford these very upscale and elite homes? Turns out it was the subprime mortgage crowd.
Life being what it is, Fannie Mae, Freddie Mac and those "too big to fail" giants eventually "discovered" that those thousands and thousands - and thousands - of subprime mortgages had turned into worthless toilet paper. So the Fed gave them a few hundred billion - actually almost 900 billion - dollars to make up for their bad business decisions and take all that now worthless junk paper off their hands. How nice of them to do that.
So why wasn't everybody happy?
Well, the stock market, a place full of faint-hearted and nervous Nellies had been doing their "The sky is falling" routine, and Congress hadn't done a thing to "save" the economy, an absolute no-no in an election year. Also George Bush, most witless president of the century, wanted a nice feather in his cap - the legacy thing don't you know - to offset the dismal results his toxic, incredibly expensive and illegal war, which had kept his limited attention span completely off the stunts happening in the mortgage market.
So, George and his buddy Paulson over at the treasury concocted up a bill with a "really big number" and sent it off to Congress. That "really big number" turned out to be $700,000,000,000. They wanted to.., Well, we don't really know what they wanted to do with it - they won't tell us - they just wanted lots and lots of money to buy up stuff and save the banks, who were not issuing credit or lending money anymore.
So, now they want to confiscate $700,000,000,000.00 (seven hundred billion dollars) more of our money to give to the banks, so the banks can start loaning our confiscated money back to us.
But wait... didn't the banks sell all that worthless paper to the above mentioned already bailed out giants that were "to big to fail? Why do the banks need any money? They are not holding any of that bad paper, they sold it off.
If the institutions who bought all that worthless paper have already been given close to a trillion dollars to stay afloat, why the need for seven hundred billion more? Sounds like bank blackmail to me, the "We won't loan out any money until we get our share of the loot" kind of blackmail.
Guess I haven't figured it all out, other then the part that we're going to have to pay for it all, compliments of - once again - our our totally compromised Congress.
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