Big Banks Bought Barney's Bailout Bill
June 25, 2008 (EIRNS)On the eve of probable Senate passage of a version of the Sen. Chris Dodd and Rep. Barney Frank mortgage "rescue" (bail-out) bill, the Washington Post detailed in an article today, what only EIR has reported over the past four months: The bill was conceived and drafted by international banks, led by Credit Suisse, to stem their losses in the mortgage meltdown, at public expense. This bankers' bill has been the "roadblock" in Congress against the only workable solution to the mortgage collapse, Lyndon LaRouche's Homeowners and Bank Protection Act which is widely backed by cities around the country and would freeze all mortgages and foreclosures, as well as taking banks under Federal bankruptcy protection.
The Dodd-Frank bill, as its central provision, commits the Federal Housing Administration (FHA) to insure up to $300 billion in new, "replacement" mortgages, which will knock 10% off the loan value of existing defaulted, foreclosed, or delinquent mortgages. Supposedly, according to Barney Bail-out, the Federal government tax-money risk of this FHA insurance will be small, because the homeowners getting these lowered replacement loans, with lowered monthly payments, won't default a second time, and won't "walk away" because their home will now be worth more than their mortgage debt.
But average home prices nationally have already fallen nearly 20% from their peak of Fall 2006, with no sign of the plunge slowing down.
One day before Sen. Harry Reid is to hurry the bill through the Senate, the Post reported it was conceptually outlined in January by Credit Suisse bankers. Bank of America executives did a "redraft" on March 11, and both banks were "instrumental throughout the process," along with Citigroup and the Securities Industry Association. The banks also provided to the Congressional Budget Office their (pollyanna) estimates of the volume of re-defaults on the new mortgages the bill will insurewhich defaults, the FHA and taxpayers will bail out.
"The measures would allow [banks] to get cash out of foreclosed properties which would otherwise sit on their books as dead weight." They also convinced Frank, Dodd, Reid, et al. that this would revive the mortgage market (i.e., stop the collapse of home prices).
When that belief proves false, the Federal government will pay massively for the resulting bail-out of the benefiting banks.