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very interesting all over the very interesting book michael hudson
of he has written for the new york times los angeles times mother jones he's on
the george polk award and his long-time writer for the wall street journal it's
a reporter of course and his new book is the monster how again of predatory
lenders and wall street bankers fleece america
respond global crisis
michael one in the young turks
gravy
great out here so
now if you listen though different people they've got all sorts of
different ideas on how this meltdown happenin though seven oh eight cent i'm
for example problems will tell you off it was all the government
uh... it was all fannie mae or freddie mac and what they did is they need
aidid
or bankers d loans to these
people who should have gotten loans
and hence it was born in frank's fall
project
red efficient i just uh... uh took a radio tourer on thursday where than
about twenty stations around the country and i think it leaks
three of them
basically wanted me to talk about how barney frank it cost all this
and we're a bit upset when i
tried to explain well
or some other factors balkans ok bells are anything anyway freddie mac or
disaster
and so
they were contributing factor
we don't have to get in that day i didn't bring that up to make sure that
we go to that whole detail but i want to be it but i brought that up in the
context of what i want to know is what's really at the heart of this problem what
what really causes collapse what was the institutional factors
and who was involved side i know your books about that so let us know about
them
right etc basically what happened was
that we have to corporate cultures get together
wall street
and we have the sort of casual calpoly capitalism of aren't county california
where almost all the major sub-prime lenders grew up and and flourished
when those two got together on the wall street money starts flowing to the tarp
i'm lenders
that's when ho
sub-prime went from the sort of small marginal market
into this monster that was capable of
hurting millions of people and then eventually you know crashing our economy
and awning at the global meltdown white solicitous and incentives in our work so
for example
even gave his leadership people some people might not know what it would have
some prime
mortgages what is it and how did it grow
well lawyer sub-prime mortgage was was
was uh... alone
higher interest higher fees
to someone who had go
at credit we credit
or maybe just too slow in you know modest m com
actually what
awfully ended up being was sub-prime mortgage went to anyone who is willing
to take it for prime mortgage
and because the failed before so aggressive
ento good at what they did often a lot of people who
didn't qualify for supper i want this to qualify for a regular month
ended up getting stuck and and the really
terrible sub-prime loans that were often structured like time bombs they would
look good at the beginning that there be a low initial payment
but then eventually they would explode and and people would be an and big
trouble so what happens is that this expiry time eighteen months whatever it
might be
also their interest rate goes from another making up his numbers here's an
example goes for a reasonable five percent of the could pay off the day to
capacity payal the ten percent of fifteen percent by a car or a prolific
seven-and-a-half percent
and i and a half
and then fix it then i have been another six months later eleven have on all in
all the way up possibly applies fourteen or fifteen percent
uh... you know what would happen if it's folks which would get the phones
and get a loan and and
you know that they would struggle by even what for the judge that they might
you know might take money out of four oh one k_ that might
or money from from relatives whatever and they would hang on for per year or
two
but actually they would that the only way i would be able to keep you get
another one and of course
though your either what difference up rajinder or your richer when it would be
more than happy giving up on
covet load up on more fees
because i uh... having buyers are going up
uh... they knew you had a lot of equity helps a lot more trees are popular
people
who would have
five
sub-prime unified loans at a period of five or six years
not because they were naturally using the houses what a_t_m_ machines which
just because they were definitely trying to outrun that first loan
and then you know pay off the previous one by another one
by another one for the stable canaveral eventually it will play on the fifth one
that collapsed onto the way that he
and it would go down on the books aroma sub-prime lenders buckley would go down
is if they work for you know
one battle on the last one where where the bart finally defaulted in one of the
foreclosure on
and four quote-unquote good loans because you know those four sh or loans
have been paid off but the reality was
each of those
all five of those loans were bad
un payable doomed to fail one just just
predatory
so no i did reason why the guy who's buying a house that initially just in
the beginning a nice interest rate
maybe he doesn't see the the ballooning interest rates may be stopped a mystic
and thinks he could pay those interest rates later and he gets into a house may
be that he couldn't quite a forbid likes that if he's in i'd so those are among
the issues why he'd want to get involved
why does the
that the guy who's doing the sub-prime loan because a lot of people would think
michael well at some point out loans could explode everybody knows that right
in doing that they had to note that so at that point
a you-know-what
you've got this
you fault and it's going to cost you more in the long run
so it might not be a savvy businessman but that's not how it was truckers
structured was
cookbook fall under who made the one with them past alone on to a bigger
landed with and have fun on
to a wall street bank which without off loaded into something called a special
investment vehicle and pull a bunch of these ones together
cell arch basically shares dandelions
are pawns based on income stream from the flunked investors all around the
world
so that the payment was there's a lot of inflation between
between what happened at the lower level and and who who actually own alone
and because of the fact that
uh... most the people on wall street near that these loans ripping refinance
over and over again
they knew that that
you know sort of like a game of musical chairs you
you know you probably want to be the one who got caught on the bar
with when is a fall
because the landscaping refinanced over and over again silks in places and i
would run of michael's and he wrote the book the monster explaining
how this all grew out of control
if you're the guy the regional guide
you know sub-prime mortgage inc giving it somebody who's gonna move into a
house
since you're going to pass that mortgage on the someone else
don't care
you have a zero a set of
to make sure that it's at alone that gets pay back all almost frightening o
almost no entire right having tremendous decided to make more of them because
you'll get fees for every single one
you do is that right
right and in the end of the worst of on the higher interest rate
the more risky alone was the more money you get if you're making plain vanilla
mortgages
you don't get paid much but if you're making this a prime loans if you're
making
the option arms or the alter a mortgage at all this other sort of alphabet soup
of lunch
you're going to make blocked with money so i think that's a lot of people don't
get you know in for example in countrywide
the nearly double their profits by meeting with secure loans
insanity two percent return all the sudden did get a four percent return
because it was riskier
but i've been out of the risk
right the difference but that interests
you know the interest marco's are the the profit margin
on a on a plane but no on for or on a supper more most was four times the
profit margin on are on a regular all source after all there
so all the sudden you have
all these guys who were giving out mortgages that have come
in this financial incentive to make the mortgages worse and worse to make them
riskier an with exploding
wounds et-cetera et-cetera uh... now
what's feeding that is the people who are buying those mortgages from them dot
the banks above them now why would they buy those scrappy lil
because they know they can all problem the front yard
vacant plot books how that works
well gee you you pull the loan
and then you sell bonds backed by
the the income stream from alone investors by those
they're the ones to all tingly alone into any idea as well
their thousand investors all over the world her buying a piece
of these pool so everyone owns a little peace and no one it is you know have
have total or building on that
you know in and they want to do this is very populate
as along as you could keep
doubling tripling your volume
every year and remember you know how we talk about it might take ship couple
years
at the lease before someone who got a bad loan which would get in trouble and
for the fall have to refinance or go on a foreclosure
so if you kept up one trip doing the volume every year
your defaults from alone say that you made two thousand three by two thousand
check-cashing
they would start popping up
you know with a vengeance
but if your volume it four times what you were doing you know overall what
you're doing in two thousand three
those default or a much smaller percentage of earth over much of a large
hole mail
so as long as the vicki what this was all back growth as long as you keep
growing america west the largest sub-prime lender
and early two thousand foot doing
six billion dollars
info prime once a year by two thousand four they were doing eighty two billion
a year
sees appearances is stunning number rides wrote what sort of michael us in
here he used to work as a reporter for the wall street journal is now a writer
for the center for public integrity who wrote the book monster
how all this grew out of control soap michael at goes from a request making
these sub-prime loans
all pooch latter entomol so many different banks ride and that's why we
had a systemic problem when everything crap
ultimate soccer who finally gets left with the hot potato
what what we we are although taxpayers
they got stuck bailing out bank
albeit the pension all people have pension fund that you know that that
public pension fund that they can have
them you know everyone you know the people who are who are suffering the
myth and the ownership up alone so
the profit
were were very here
when they took to a few people
two thousand people maybe in in the mortgage industry and on wall street
but the pain and the and the
carter you know i have now
descended on you know
millions of people so for example bank of america gets a lot of these of
loans which they did right they say well you know partly sad day for our
shareholders and allot of our shareholders are pension funds for
example juror that ad but the exact as a bank of america made out like bandits
they made a tremendous amount of money in the as all this on folded because
they will get paid on the profits that they made
the short-term write an example your country rock which was eventually art by
bank of america
at the start of faulted it
c_e_o_ and on the solo according to the federal government recent lawsuit
uh... took a hundred and forty million dollars and what a
what the government said with ill-gotten gains
uh... you know improperly taken out through
insider trading in securities fraud
when he settled the case
other salomon which was for life and half of that fifty-seven million but
bank of america and cut your wife in charge companies
paid most of that
and wilma fill up at about twenty million which by my math
means that he paid about sixteen fence for every
dollar end
uh... ill-gotten gains
according to the government
but by the land i want to know it is i would suspect case
that was the l gotten gains in just the last year when he was sucking the money
out of the company
so you have a lot of any let let you get at the end i don't know that they would
get the last year made last year or two people running stock plan basically
because you're you know the p_l_o_ you're supposed to have a
automatic stock selling planned for you can look at him from your stock but
but you're not poster
to too
disco cash in your stock that would allow you to to do insiderpages insider
trading and cash in on on knowledge that your company is about to go on there at
the market is
is is about the crash
uh... but it with the wedge that that
manipulated backfill part of the government allegation right as i want to
really be clear on this because
at to give you a sense of who got rich and who got robbed right
somu zillow the last year to year and a half got about a hundred and forty
million dollars the government says the last three years got two hundred sixty
million dollars
although it's not that he was a c_e_o_ countrywide got approximately six
hundred million dollars
and then work comically paid back twenty two million
market soviet so yeah i don't know what to do this degraded other sample video
even
the numbers even bigger
i want all who was
really in many ways that the godfather sub-prime help jeff create a modern sub
sub-prime model
out of a large county and late eighties built this empire eventually
uh... they became america last the largest sub-prime lender
oh
he was rich enough improper map where he was uh... george
george bush is the biggest
uh... source of of political cash
going to go before election cycle
eventually was appointed as bushes and after that a lot
uh aren't all of the in a three-year period
two thousand uh...
took a three year period in the middle the boom
he took out personally two point seven billion dollars
and profit from his sub-prime empire
now eventually a coalition of state uh...
attorneys general in bank id six forced him to shell out national predatory
lending fell about his company
two to three hundred twenty five million
which sound like a lot but if you do the math on that it
it's a pretty small fraction
of the two point seven billion he made in the three year period
it's actually left and companies were spending
on advertising and marketing at the time you know they've they weren't
and i got the naming rights to the texas rangers dealing with america left field
bay sponsored the two thousand five uh... superbowl halftime extravaganza
proper kardi
uh... they were served everywhere in the sport sporting world so michael knows
well you discuss solicit so first of all by the way
in as we're talking about all this in on over
holding some of the world maybe two point seven billion i know you get six
hundred million for marcelo that doesn't cassano was ahead of angie's financial
products division he made another six hundred million dollars i'm missing the
part where barney frank made them a call this morning
well it's quite clear that
you know we go back to fannie and freddie
yale pirated if he'd be right i think you know there's barney frank this
this guy with a massachusetts
you know because of the broke with use them at your broder whatever you know
minutes
you know and and so so there are certain people who don't like am i think he's
you know whatever
and so to appear to play at barney you know that leaving him to remember
*** and freddie
barney thank you know if i could fit
children show
or something yet so i did lest generous in new york ecosave republicans who want
to protect people like mercele and arnold because arnold literally is their
top donor
okay they want to protect those guys so they try to trek you and divert your
attention by goats over democrat barney frank of massachusetts tonight energetic
every corporate there's no doubt
that fannie and freddie
played a role in this but they've you know everybody you know there's a
republican for
committee staff report that said you know if you have to understand how
fannie and freddie caused this
and an alley when brothers
you know followed the lead of fannie and freddie
and that's how we got this meltdown
an actual picture it was just the optical remember others
and other wall street
affirms
were in on this back and then in the late nineteenth when brothers and over a
over eleven year period
tethered eleven years there is the number one or number two
for the volume of sub-prime mortgages that they've rolled into the security
field
fannie and freddie actually lost market share
pretty much the mortgage blueprint two thousand seven
to two thousand absurd for two thousand three to two thousand fixed
they went from seventy percent to thirty percent of the market
and what that what happened was is in an effort and because the pressure from
people like miss billow and others an effort to catch up and maintain their
market share in our you know market beaten up more
they did start doing a lot more of these risky loans
and because of their market size in the market
volume
uh... mm that they've paid
be really exacerbated this five of the meltdown and and intensity of the pain
but willing to sit on the senate is a little bit better right
did didn't franny and freddie have and their executives have almost the same
and send him to get back in some ways worse then the privately held companies
or the or the public corporations like they've america focus their executives
we're going to make
the money just as the executives other companies we're going to
they had a problem in the defaulted was their shareholders or the taxpayers that
are on the folks so what are they can
right well n m chris chris carter worked when
that they did ameen
dantrell recipe pride or operating a private company if they had that
shareholders
they had profit expectations to meet
and so they want that different
except for a little bit closer relationship to the government unfit
bankamerica and and and and figure
but as we talk again it wasn't just any trade they got bailed out although it
you know all the that the private baking or
executions
got got bailed out in the end
it because i think that that that keeps
brought up if the community reinvestment act which a lot was passed
many many years decades ago which basically says banks need to serve all
communities and need to make loans and low-income and minority neighborhoods
because there was lots of redlining a lot of discrimination
almost all other sub-prime lenders including america last new century
and most the biggest one
were not covered by the community reinvestment act
they didn't make the loans in minority neighborhoods because the government
forced them they may be funds because they were wildly profitable
sick sites so those of the lifestyle we get so the truth
uh... about how to fix this enforce all of the answers on any better right
because
we know how to fix it right i mean he t who wouldn't give us a couple
prescriptions on what we would go
and force that we have met any of the family
we've got some of the burned out all the time in much of it left to be written
because p
consumer financial protection bureau which which is set up it part of
the financial reform
it has wide latitude to write rules about dangerous credit products justice
if you're a manufacturer
and and i think a little more dollars users metaphor and you make in one out
five-year toasters catch fire if your lender and one of your fat it one of
five of your europe mortgages
go bad and a short time than than that question should be raised and their
*** you know quote-unquote recall
uh... so so but but really it's it what's going to happen with that
as yet to be written and there's going to be as much lobbying and it's going to
be justice person first
as it was
during the legislation
that but by the the financial industry
too
op attacked those rules and try and we can undermine what what's going on nine
cecil balances things by you real quick results
if you have to keep the loan that you wrote wouldn't i give you an enormous
incentive to make you a good long rather than a bad loan would that be a huge
step in the right direction right i mean directly older bailey building and loan
model
that would be there would be a good step or
uh... applique called funny liability if you do sell the loan
whoever buys alone
as responsibility if in fact alone was made by one of these
words brokers are small wonders if there was fraud or other problems and making
it alone
so the the the bad thing that are happening on the ground level
at the point of sale
would need to follow up alone as it's being passed through various owners how
did we do any of that
now with a try to do that in a state of georgia
uh... way barnes when he was governor and two thousand to push through the
topic
predatory lending on the country
and after he got voted out of office for other reasons
and early two thousand three others republican governor
and wall street the mortgage industry
at ten p_m_ near the rating agencies and the federal banking regulators basically
descended on georgia
and said we're going to check down your
mortgage industry if you do not changed law so they changed the world a kick out
the funny liability and some of the uh... uh... are weakened it to a point
where where was meaningless
and and and from the other key
key features of the law
and ed result um...
the message was sent around the country that you don't match with the mortgage
industry you don't match with wall street
and also georgians at nab georgia as one of the highest foreclosure rate and the
country's so sake turns out the deregulation help the robbers
and did not help the american people i didn't see that coming
now look you know i was going on a sample there's a hundred points with the
band of derivatives on the stuff but we didn't do that there's a million and a
half things we could do is regulation that we didn't do as obama pretends we
have the best you know the most historic finance reform
uh... ananda bankers pretend they got her last question for you michael uh...
there's an issue show you that if you're rob people you should rob amano really
large scale
that justification ellen in the uh...
almost all the people to death may have anybody on the gel for this and in terms
of the mortgage
buckle
uh... as far as i know almost all of the folks who have been prosecuted have gone
to jail
or low-level people mortgage brokers and people like that there've been no uh...
as far as i know any any high-level executive and criminally
attacked on this issue
right and by the way it was to take all that money and you give paper says that
the government and a fine haha
make sure you by politicians with some of that funny they don't need much of it
offices are cheap
so that's a state of american politics unfortunately and now the state of the
of how we got in this mess is set
explain and very well the book the monster allegheny predatory lenders and
wall street bankers least america's on the global crisis by glistens author
thank you for joining us michael rupert smith but how much all right we'll be
right back