sub-prime

this piece by greg palast was posted by daleaway on public address system today - a piece about the sub-prime mortgage mess in america, and what it had to do with eliot spitzer. for those who don't understand what sub-prime mortgages are about, this presentation posted on "the standard" is really quite good.

sub-prime mortgages basically seem to be loans made at a lower-than-market interest rate. why would they do it? because they were in the same situation that i've previously mentioned about nz banks - they had too much cash and had to lend it out. so they got creative about how they could get people into debt who wouldn't normally qualify for a loan.

that it is all collapsing is hardly surprising. what is really appalling though is the $200 billion dollars of (presumably) taxpayers money put into these financial institutions by the federal reserve bank, to save their butts. this massive amount of money did not go to the people who are now unable to pay their debts and are losing their homes. no, it's going to the lenders who were prepared to loan money recklessly.

you may say that the ones losing their homes were stupid to take on debt that they couldn't afford to pay. and yes, i could sympathise with that view. but on the other hand, i think about the nz situation, and there have been countless numbers of "financial experts" holding seminars up and down the country in the last 5 years, persuading people to invest in rental properties, with 100% financing. for those who weren't financially savvy, the dream of success was put in front of them and made to look so sweet and easy. the capital gains would take care of it all, soon the amount you lend would be a much lower proportion of the total value of the property.

the racial aspect of this is very disturbing:

Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.

‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hearty – it was OK now to steer’m, fake’m, charge’m and take’m.

i don't know where he gets his figures from, but if true, this means that poverty becomes entrenched among the targetted racial groups, as they lose whatever assets they previously had. that poverty cycle tends to insure a good supply of cheap labour, as these people will take on whatever job they can just to feed their families. often they are working two or three jobs.

the current american administration is not interested in helping them out of that poverty. it could have taken the option of providing targetted mortgage rebates or assistance for the people who are defaulting. the end result would have been that they could keep their homes and the financiers would still get their money, thus halting the collapse of the sub-prime market. but they have chosen not to do that.

how on earth is it that this not heading the news? why do we get 5 minutes on heather mills, and not 10 minutes on this? i go back to my post about zimbabwean new zealanders, and wonder why our media wants to highlight $900,000 spent on the healthcare of some hundreds of people, yet is much quieter on the "one fifth of a trillion dollars" being paid to crooks.