The very people who were in charge of keeping Wall Street honest are biggest beneficiaries of ‘kickbacks’

October, 2008

Wall Street Banksters doled out $2 billion to federal candidates and political parties since 1989 when the scam to rip off of the middle class of their savings and real property—with the fleeced taxpayers ultimately footing the bill—began to unravel. That $2 billion “investment” enriched the contributors many times over—but the ultimate payoff was the $700 billion bailout that costs taxpayers $850 billion. The Center for Responsive Politics, a Washington nonprofit group that studies money and politics, reports congressmen who voted for the bailout bill took in 151 percent more in campaign contributions from the FIRE (finance, insurance and real estate) lobby than those who voted against the give-away. In this election cycle, the 140 House Democrats who voted for the bailout bill collected 78 percent more from the FIRE lobbies than the Democrats who opposed it. Over their careers, they collected 88 percent more. The 140 Democrats who supported the bailout received, on average, $792,744 over their careers from the FIRE sector—and $188,572 during this cycle.

Republicans in the House who voted yes on the bailout got 53 percent more than House Republicans who voted against it. The 65 Republicans who backed the bill collected $1,078,533 from the finance sector in their careers and an average of $185,461 to help them get re-elected this November. Rep. Barney Frank (D-Mass.) chairman of the House Financial Services Committee, collected nearly $800,000 this election cycle from the FIRE industries. Spencer Bachus (R-Ala.), the ranking Republican member of the committee, who voted for the bailout, took in $822,000 from the FIRE special interests this election cycle—for a total of $3.7 million since 1989. Senate Banking Committee Chairman Chris Dodd (D-Conn.) received nearly $6 million in the past two years from AIG, Lehman, Merrill Lynch, Bear Stearns, Freddie Mac and Fannie Mae, etc. Eighteen of Dodd’s top 20 backers are FIRE’s insurance or financial companies. The language creating slush funds for the Association of Community Organizatons for Reform Now (ACORN,) etc., was slipped into the misnamed “economic rescue” proposal by Dodd and Barney Frank.

Members of the House and Senate have received more than $180 million from PACs and individuals associated with FIRE this election cycle—and there’s still weeks to go. The FIRE sector has so far contributed more than $68 million to House members in this election, and nearly $315 million since 1989 to members who voted Monday. These politicians say they were “voting their conscience,” and those bushels of dollars had nothing to do with their votes. To which populists respond, “liar”— hoping outraged voters will cast the incumbents out. The establishment presidential candidates—who joined the “sky is falling” chorus—also benefited from FIRE’s largesse; Democrat Barack Obama collected about $25 million and John McCain $22 million. Dodd’s proposal would set aside 20 percent (estimated $140 billion) from the Treasury’s sale of assets to the Housing Trust Fund to benefit ACORN. ACORN is a corrupt organization that has been accused and convicted of voter fraud in at least 13 states. Their tactics have ranged from registering dead people to trading cocaine for illegal ballots in Ohio in 2004.

Dodd has been rewarded in the 2008 election cycle with $7.65 million in campaign contributions—he took in $11.7 million in all—from FIRE, the securities, insurance, real-estate and commercial-banking industries, according to his latest Federal Election Commission filing posted at With $165,400, Sen. Dodd also tops the list of members of Congress who took campaign cash from Fannie Mae and Freddie Mac since 1989. Sen. Barack Obama is a distant second at $126,000—but he’s only been in the Senate three years. Sen. John Kerry is third at $111,000. Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and Sen. Hillary Rodham Clinton are in the top 20.


In related news:

How Can We Have Capitalism with No Capital?

It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control. We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.

Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run. Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.

These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.


How Crackpot Egalitarianism Caused the Sub-Prime Mortgage Crisis

"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing credit requirements on loans that it will purchase . . . [to] encourage . . . banks to extend home mortgages to individuals whose credit is generally not good . . . . Fannie Mae is taking on significantly more risk." ~ New York Times, September 30, 1999

The main cause of the current economic crisis is the boom-and-bust cycle that was caused by the Greenspan Fed. Years of artificially-lowered interest rates caused trillions of dollars in mal-investment in real estate and other industries, and now we must endure the bust. But crackpot egalitarianism within the Fed and, indeed, in the entire Washington establishment, has made the crisis infinitely worse.

In the early 1990s the Boston Fed did all that it could to fabricate "evidence" of widespread lending discrimination against racial minorities. But when Peter Brimelow and Leslie Spencer of Forbes magazine asked Boston Fed official Alicia Munnel what evidence of discrimination she really had, she was forced to admit that she had none.

Fighting discrimination was not the Fed’s real goal. The real goal was to achieve a more "egalitarian distribution" of housing, period. So under the phony guise of "fighting discrimination" the Fed, the Congress, Fannie Mae, Freddie Mac, and myriad other federal government agencies forced, bribed, and extorted mortgage lenders of all kinds into making literally trillions of dollars in bad loans to unqualified borrowers. Countrywide Bank alone was praised by the Fed for making $600 billion in such loans (shortly before it went bankrupt).

The Fed’s "smoking gun" in this entire charade is a Boston Fed publication entitled "Closing the Gap: A Guide to Equal Opportunity Lending." There is a gap, you see, between the value of real estate owned by middle- and upper-income Americans on the one hand, and lower-income Americans on the other. (There is also a luxury automobile gap, a two-week European vacation gap, a luxury boat gap, an expensive suit gap, and many others). The federal government has used all of its powers of threats, force, and intimidation over the past two decades to try to close the housing "gap." "The Federal Reserve Bank of Boston wants to be helpful to lenders as they work to close the mortgage gap," the publication states.

In addition to closing the "mortgage gap," the Fed also pressured lenders to adopt a more vigorous racial hiring quota system, presumably under the theory that minority loan officers would be more likely to acquiesce in the Fed’s dictates to make more mortgage loans to its political mascots, sub-prime borrowers.

The Boston Fed report claims that it is only offering lenders "guidelines," and "suggestions," but it is very clear that failure to obey the Fed’s "guidelines" can lead to serious financial problems for any mortgage lender. The report states in bold type that "Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions."

All lenders – banks, independent mortgage companies, etc. – were told that they needed to pay close attention to "such laws and regulations as the Equal Credit Opportunity Act (Regulation B), the Fair Housing Act, the Home Mortgage Disclosure Act (Regulation C), and the Community Reinvestment Act." A "conscientious [bank] Board will recognize the potential liability associated with noncompliance . . ." Ah, the subtle power of suggestion.

The Fed instructed lenders to ignore traditional measures of creditworthiness when it came to "minority and low-income consumers." Traditional underwriting standards were said to contain "arbitrary or unreasonable measures of creditworthiness." "Special standards" that "are appropriate to the economic culture of urban, lower-income, and non-traditional consumers" were urged. For example, traditional underwriting standards take into consideration such things as age, location, and condition of a house, but these should be abandoned when it comes to sub-prime borrowers, said the Fed.

Traditional ratios of mortgage payments to monthly income can also be ignored, said the Fed. And besides, "the secondary market [i.e., Fannie Mae and Freddie Mac] is willing to consider ratios above the standard" ones for other borrowers. "Lack of credit history" should not be a factor either. "Successful participation in credit counseling" was said to be an adequate substitute.

Lenders were repeatedly urged to "work with special secondary mortgage market programs" such as those administered by Fannie and Freddie. Lenders were told to "be aware that Fannie Mae and Freddie Mac have issued statements to the effect that they understand urban areas require different appraisal methods." If a sub-prime borrower has a property appraisal problem, then the Fed or Fannie Mae could help to find "another experienced appraiser" who would presumably see to it that the property was "correctly" reappraised so that the sub-prime loan could be made. Yours truly was always under the impression that shopping around for "the right" appraiser who would give you the number you wanted (for a fee) was fraudulent and illegal. Silly me.

In sum, the Fed’s policy of housing market socialism (endorsed and supplemented by numerous federal laws and regulations), combined with the boom-and-bust cycle that it created, has been an unmitigated economic catastrophe for the entire world. Naturally, the Fed’s response has been to grant itself even more powers, while the executive branch and Congress are busy nationalizing the capital markets, a move that will kill American capitalism. Abolishing the Fed would be a very modest first step in dismantling our rotten Leviathan state so that the next generation can at least have some hope of living in a reasonably free and prosperous society.


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