Report: "Reckless Endangerment" (How the country got robbed

RUSH: Last night I promised that I would begin reading on my own a book, and I did: "Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon." It's by Gretchen Morgenson and Joshua Rosner (he might pronounce it Rose-ner), and Gretchen is a business writer for the New York Times. I have to confess, before I knew anything of the book or knew anything of the contents of the book, simply because she was at the New York Times I figured it was going to have an obviously left-wing slant to it. I read a review of the book to you yesterday by Walter Russell Mead, well-known historian, that was sent around by the noted Democrat pollster Pat Caddell. The review of Mr. Reid's was this book is a "weapon of mass destruction" for Republican presidential candidates and operatives.

Because it is a credible indictment of the Democrat Party, Democrat leaders and the Democrat Party's alliance with Wall Street leaders in creating -- by virtue of policy -- the entire crisis that has led to the present state of the economy, that it can be laid at the feet of Democrats exclusively. Now, in terms of its origins -- origins, by the way, which go back to 1992 and Bill Clinton. Now, in the ensuing years, there have been Republicans that have come along and have allowed such things as subprime crisis and all to go on. There were other Republicans that tried to regulate against it and stop it. So it's not entirely laid at the feet of Democrats, but its origins are. It's a devastating book. I've now started hunting and pecking my way through it.

I solidly read through Chapter 4 and then in the interests of time and economy (and my book report for today) started scanning other parts of the book, and it's amazing. It is everything that our instincts told us about this crisis, from subprime to the "social justice" nature of extending loans for houses to people who had no way of paying them back, done on purpose as a matter of policy to secure votes and to also create revenue streams for most-favored participants. The names are legion and they are mentioned throughout this book, and you know them all -- except maybe for one: James Johnson. James Johnson is the villain. This book answers the question: "What happened to our economy?" The American people know that they've been robbed.

This book tells you who robbed you, and it was an alliance (that's ongoing, by the way) of the Democrat Party and liberal oriented members of Wall Street, usually the upper echelons. I highlighted a couple of things. This is page 4: Fueled by dubious industry practices supported by many in Congress and unchecked by most of the regulators charged with oversight of the lending process, the home ownership drive helped to plunge the nation into the worst economic crisis since the Great Depression. This truly was an unprecedented partnership. But what few have recognized is how the partners in the Clinton program embraced a corrupt corporate model that was also created to promote home ownership."

This traces the current crisis all the way back to Bill Clinton personally, not some members of his administration (although they are included) but him personally. The first words in the book are a quote from Bill Clinton about the need for home ownership to be spread far and wide, that it would rebound the economy, that it would give a greater sense of community. But whether people can afford homes or not, they need to be in them. It details and explains the subprime crisis, how it came about, what it is and how people made money from it. It explains the derivatives. It explains the packaging (or the pooling, if you will) of mortgages. It traces the first such evidence of this in the private sector. Now, Fannie Mae is target number one along with Clinton and the Democrats. Barney Frank, Chris Dodd.

Everything that you thought you knew about this is documented fact in this book: "Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon." One of the questions that a lot of people have had: "How in the world does anybody make money lending money to people that can't pay it back?" How does anybody make money doing that? That's the question that the average layman will have when having this whole thing explained. "Okay, so we're going to go out and loan money to a bunch of people who have no business getting it?" In fact, folks, this will anger you like little has. The lending rules that were tossed aside, that were relaxed? The one rule that used to be you had to be no more than 25 percent of your income devoted to your housing, they threw that out.

It became 36 percent. At some point, they threw it all out. Credit checks were thrown away. Nobody had to prove anything! In fact, one of the things that was a tool that was used to determine whether somebody was to be given a mortgage was to try to predict their future. What kind of earning power were they likely to have based on computer modeling and statistics, not based on anything relevant to those individuals and the way they had lived up to that point. It details how government forced lenders to make loans to people who had no way of paying them back under threat of investigation by Janet Reno. Exactly what we thought was happening is documented in this book to have happened.

So you make a bunch of loans to people that can't pay them back, you know that going in, and how in the world do you make money? You lie to other people. You pool those subprime mortgages into what's called a security. You put 130 million mortgages together, $130 million worth of mortgages together in a pool in the security -- you pool them -- and you sell that to an investor on the basis that the income stream from all of those mortgages in one security is going to be a goldmine. The income stream being people making their monthly payments. You fudge all that. You're not truthful about who is in this pool and how unlikely they are to pay, but you sell this great future revenue stream on the come. Investors go out and buy it, and at each stage investors learn they bought a bill of goods.

So each stage of investors tries to come up with a product designed to make their investment whole and pass the loss on down, and finally they reach the end of the line and they couldn't find any other dupes to buy these pools of mortgages known as "mortgage backed securities" and what have you. It is all blamed, specifically, on liberal Democrat policies, social policy. "In March of 1994, James Johnson announced Fannie Mae's Trillion Dollar Commitment, a program that earmarked $1 trillion to be spent on affordable housing between 1994 and 2000." Now "affordable housing," as Barney Frank has told us -- and as we now know, affordable housing -- is simply another way of defining loaning money to people that can't pay it back, all on the premise it's unfair that some should live in a house and some don't.

That's not a fair and decent country that has a circumstance like that. For America to be "fair," to have "social justice" and to be "decent," everybody should have a chance to live in a house! Everybody should have a chance to own their house. That's the American dream. So James Johnson, in 1994, creates the Trillion Dollar Commitment Program that "earmarked a trillion dollars to be spent on affordable housing between 1994 and 2000," the subprimes, essentially, "a program which would reward lenders and give lenders the money to make these mortgages," to make these loans. "The money in the Trillion Dollar Commitment would finance more than ten million homes for low-income families, minorities and new immigrants, families who live in central cities and other underserved communities and people with special housing needs, the company said," meaning Fannie Mae.

"Setting aside these funds meant this: 'Fannie Mae will transform the nation's housing finance system by working with other industry partners to eliminate the barriers to home ownership and promote a ready supply of affordable rental housing.'" Now, at the time Fannie was under investigation. They were always regulated and at this point they were under investigation, and the guy running Fannie Mae -- James Johnson -- is trying to do anything he can to create exemptions for himself and Fannie. The book also lays out that the executives at Fannie, in large part, derived policies that were oriented solely at paying themselves lavishly. It was a giant slush fund scam to individually get rich, to advance liberal social policy. "One trillion dollars, even for a man with plans as big as James Johnson, the figure was audacious, but it had to be as those inside Fannie Mae knew if Johnson was going to secure the protection that Fannie Mae needed from regulators. The plan, former Fannie executives say, was to commit so much money to 'low-income housing for families and communities most in need,' that no one would dare criticize the other activities Fannie Mae engages in."

So you go out of your way to make it possible for the poor to get into homes and whatever else you do is ignored because you're doing the Lord's work.

RUSH: By the way, somewhere in the book Reckless Endangerment it's pointed out that James Johnson -- they referred to him as "corporate America's founding father of regulation manipulation," and that's another big part of the story here, that we have so many regulations that somebody knows how to game them can make out like a bandit and never even break a single law and get rich in the process. But this book, folks, explains why we're sitting here today as we are. That subprime business is all of this silly financing and expansion of the housing market? That's it. It's 90% of what's going on and why we're here today. Obama's the other 10% of why we haven't been able to reverse this and take a new tact.

Democrat leaders and the Democrat Party's alliance with Wall Street leaders in creating -- by virtue of policy -- the entire crisis that has led to the present state of the economy, that it can be laid at the feet of Democrats exclusively.

It was all done on purpose.

It was all done on purpose.

I thought most of this was all pretty much common knowledge by now. No? Question is, was there even a darker, more sinister reason for all this. For example, did the Cloward-Piven "strategy" play any part in it? IOW, was this more than just pan handling for favors and votes? </tin foil>

The bigger question is, what is the end game?

More and more I read that good solid loans are being “assigned” to Fannie. My loan was assigned by a bank I NEVER had a loan with (or any of their bought up banks), who then assigned my loan to Fannie. All unrecorded at the county. It stinks.

So, with the majority of loans owned by the government instead of a bank, what does that mean? Will this turn the entire country into a “Company Store”? A feudal age where property rights are totally destroyed?

The more evil thing is that there is reason to believe that these “securities” and “trusts” never had the loans assigned to them. They are finding that the trusts are EMPTY. And the banks used the investors money to loan out for the home mortgages. So essentially, the banks were middle men who had no “money” lent, took the investors money, sold the mortgage to who ever, and then when the homeowner defaults, gets a free house. The banks are getting paid by BOTH ends of the deal. And NONE of their MONEY was used. And that would be on only ONE loan. How many times did they sell the same loan? Thieves is too good a word of what they have done.

Much of what you suspect to be nefarious dealings is SOP in the industry. Probably something in the neighborhood of 90% of loans are sold to "investors", most sold in "pools"; some just to individual institutions who have cash laying around. Pool insurance; something akin to derivatives apparently, is what made the packaged loans, or mortgage backed securities, more salable. Investment grade stuff.

There were failings at EVERY level along the way after the federales put the CRA on steroids.

Actually, I think the reason is very simple - it’s called “getting elected”.

It could be that simple but I'm not entirely convinced. The Dims in particular had to know this would all come to no good; in fact, would probably eventually send financial markets into a tailspin. There should be legislators and regulators, along with a few Wall Streeters serving hard time as we sit here typing this but since it was all in the name of social justice, well...

What gets me is that those pools are empty. The notes aren’t assigned, and there are cases where they aren’t assigned until the owner defaults.

But what is even more maddening is that those trusts are tax exempt. Those investors aren’t paying taxes on money that is supposed to be in a trust that isn’t. It is tax evasion. Pure and simple.

Never mind the banks don’t have any skin in this game. They were only conduits of the money. They didn’t lead their OWN money at all. They have no right to foreclose on a home that wasn’t THEIR money that was used.

It is a horrible awful mess. And honest homeowners who think that they are going to get title when they DO pay off that home loan, will be most upset when that this not the case.

We must have a truly independent investigation of the whole process and the crooks involved that lead to the financial catastrophe and the “Reckless Endangerment...” is a start. There has been another 9/11 type commission, the Financial Crisis Inquiry Commission stacked with Democrats as an attempt to coverup this crime. The FCIC included one honest man, Peter Wallison @ AEI, who warned of and has written about “The True Origins of This Financial Crisis”. Wallison also dissented from the majority of the FCIC and his dissent is published here; http://www.aei.org/publication29372.
Also, City Journal published a very good article in 2000; http://www.city-journal.org/html/10_1_the_trillion_dollar.html

we have so many regulations that somebody knows how to game them can make out like a bandit and never even break a single law and get rich in the process.

The dirty little secret of regulation. The more complex they get the more opportunities for really smart operators to game the system.

Each time one of them gets caught, the "answer" is to institute new regulations, which of course just create new opportunities for gamesters.

It isn't possible for $150k/year regulators to stay ahead of guys who can make $150M in short order by gaming the system one time.

In this particular case, of course, the regulators were actively encouraging the gamesters to do what they did. The regulators and pols for political reasons and the gamesters for financial reasons were playing with "other people's money."

by the grace of God we paid off our mortgage last year.

one wonders if anything can be done until it all comes crashing down.

When it does, even though money will be meaningless there will be a small group on top. They would be most vulnerable and easily overcome by the angry mobs. If we’re not dead yet.........

After the names of the political Elitists are all exposed, We The People must ensure that they “never” get elected to anything in their lifetimes ever again.

It is up to We The People to DEMAND an investigation into this reprehensible corruption against the American people and those not yet born. We must DEMAND all involved be exposed and do prison time until their end days.

And the ones who were chairman of their financial committees for the nation, who enabled all this to happen, are now the authors of the new Dodd/Frank finance bill that is about to wreck all the small banks and credit unions.

This bill is so big and bloated that hundreds of regulations are now being written (Cass Sustein) to try to implement what they have passed.

It does seem like this entire nation is getting robbed, and we will wake up one day with the digidollars gone, the crooks stuffed with our money, and the nation will fall into communist policies as a cure.

Talk about not wasting a crisis. They PLANNED this crisis!!!

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