From Volume 38, Issue 15 of EIR Online, Published Apr. 15, 2011

U.S. Economic/Financial News

Obama Says Let the Foreclosures Roll

April 6 (EIRNS)—Obama Administration financial regulators have effectively killed the combined effort of the state attorneys-general to penalize the big mortgage banks, for their flagrant law-breaking and tax evasion in foreclosing millions of American households.

The Fed, FDIC, Office of Thrift Supervision, and Office of Controller of the Currency reached an agreement, announced yesterday, with Bank of America and Wells Fargo (a dozen others will follow quickly), which neither penalizes them nor requires that they allow any principal reductions on their mortgages. They gave Wall Street exactly what it had been lobbying for, against the state AGs, and are also attempting to preempt the growing number of state and Federal court decisions against the banks.

The Obama-Wall Street agreement provides for "kinder, gentler" foreclosures—but above all, lots of them. It means the AGs' "term sheet," with its $20 billion fine (suggested by Elizabeth Warren's Consumer Financial Products Protection Agency) and mortgage writedowns, is effectively dead. Iowa AG Tom Miller, head of the state attorneys-general group, said he was disappointed.

The White House, the Federal regulators, and the banks are in a great hurry, as Obama and his spokesmen have emphasized, to get foreclosures back up and running at 300,000-plus a month again (they've fallen to about 200-220,000/month).

What the Fed's Bailout Trillions 'Saved'

April 6 (EIRNS)—Thanks to the lawsuit by news organizations, and the Supreme Court's decision not to protect the Federal Reserve's bank bailout lists, Americans now know that the biggest Fed discount window loans during the late-2008 financial blowout, went to European banks that were scamming U.S. states and cities, helping trigger their current bankrupt condition.

Being "saved" by the Fed from well-deserved failure, these banks lived to see their "auction-rate securities" scam explode on the heads of the states and municipalities.

It is clear from the evidence the Fed has been compelled to release, that the two biggest objectives of its frenetic Fall 2008 bailout lending, were to "save" trillions in worthless mortgage-backed securities and related derivatives; and to "save" the municipal auction-rate securities marketeers.

Some 70% of the discount window borrowing at the height of the blowout was by foreign banks, and among them the most desperate were Dexia and Depfa—the former an Inter-Alpha Group bank. Brussels-based Dexia alone borrowed $123 billion, an average of $12 billion drawn from the Fed at all times from September-December 2008. These and other big-borrower banks were the props of the U.S. municipal bond market's "auction-rate bonds" derivatives scheme, until it completely collapsed. It is claimed the U.S. municipal bond markets "couldn't have survived without Dexia and Depfa." But they didn't survive with them.

The banks conned the states into forgoing standard fixed-rate-capital loans in favor of loan-plus-interest-swap wingdings, supposed to provide very low interest rates. Instead, this market vaporized after a couple of years, suddenly forcing very high interest rates on those state bonds. So, the Fed "saved" this massive interest-rate derivatives scheme long enough for it to break the financial back of many U.S. states, cities, and their agencies, just as state and city revenue started collapsing in late 2008.

Dexia also got $381 billion in bailout loans from the French and Belgian governments and central banks; it is now a target of a U.S. Justice Department criminal anti-trust case, for scamming the states.

All rights reserved © 2011 EIRNS