The US Financial Shell Game, Where Will It End
Posted on January 6, 2010
The Mortgage Shell Game
Today, I received a letter in the mail that told me that my home mortgage loan was sold to Fannie Mae. Just last month, I received a letter that my loan was sold to Bank of America. The month before that another mortgage bank originated my loan. I was wondering, who will buy the loan from Fannie Mae? Probably the Federal Reserve, who will then proceed to sell it back to the banks, and then buy it back at a profit. Will I get a letter from the Federal Reserve soon saying, your loan was sold to Fannie Mae, using your taxes?
Sounds like a classic shell game, no? In fact, there’s no difference between the mortgage industry and the classic pump and dump scandals that so often happen with bulletin board stocks. It’s difficult to understand how the mortgage shell game is legal, while other ponzi schemes are illegal.
Why Doesn’t The Fed Just Lend Directly
The basic issue, of course, is that if the Fed is the ultimate buyer of the mortgage, why aren’t they just originating the mortgage outright in the first place, without bothering to go thru all these hoops of having banks sell the mortgage to each other?
Do We Need to Maintain an Illusion of Capitalism?
For one thing, I guess if the Fed originates the mortgage first, then our economy is suddenly Socialist, and heaven forbid we should become socialists. Presumably, this shell game of selling the mortgage back and forth a few times, maintains the illusion that we exist in capitalistic society, where a honest day of hard work, some assessment of risk/reward, and some luck, pays the bills. However, since the mortgage shell game is so transparent, it seems ridiculous that anyone truly believes that some of the largest and most important parts of the economy are in any way capitalistic anymore. Of course, it’s not socialist either, with the heads of FNM and the other banks skimming off trillions in bonuses for just flipping assets around and back to the Fed.
Get Rid of the Middlemen
Which of course, brings me to what is apparently the true reason for this continuing fraud. It’s seemingly important to pay trillions in bonuses to all these banks who flip mortgages, because if we don’t pay them, as Paulson, Geithner, and others (including Obama), constantly remind us, then the economy will collapse. But wouldn’t it be more efficient to just eliminate all these middleman and use the excess capital to say do something totally crazy, like ensure the health of society or drastically reduce our dependence on fossil fuels? We can even continue to pay huge bonuses to the banks if they go out and treat a few cancer patients, or simply install a few solar panels. Will our economy then collapse because we have less worthless paper to shuffle around? Is our world truly built on a house of cards?
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