Sorry, I wasn’t pessimistic enough – USA - SUBPRIME LOANS
Asia Time Online - Daily News
Mar 19, 2008
THE BEAR'S LAIR
Sorry, I wasn't pessimistic enough
By Martin Hutchinson
On August 27, 2006, this column suggested that US house prices would fall by 15% nationwide, peak to trough. On March 11, 2007, this column suggested that the total bad debt loss from the mortgage crisis would be about US$1 trillion. At a meeting at the American Enterprise Institute Wednesday, it became clear that in both cases I was not pessimistic enough. Sorry!
I was probably closer on the bad debt loss. At AEI, Nouriel Roubini suggested that the total credit losses from the housing meltdown would be about $3 trillion, but on inspection his figure included credit cards, credit default swaps and a whole host of other non-housing items. From housing alone, Standard & Poor's has now admitted to $285 billion among financial institutions (plus untold amounts among investors such as pension funds that are
not financial institutions) while Goldman Sachs, generally somewhat optimistic, has proposed a figure of about $500 billion. I believe that both those figures are low, but that my original $1 trillion figure, which included losses to investors of all types, may be only modestly low. The final figure might be closer to $1.5 trillion, or about 13.5% of the $11 trillion pool of mortgage loans.
The house price decline from top to bottom will now pretty clearly be larger than I predicted. The decline in 2007, according to the Case-Shiller index, was almost 10%; more ominously, in the fourth quarter of 2007, prices were dropping at a 20% annual rate. It thus seems unlikely that the overall decline in house prices will be limited to 20%, and more probable that when prices finally turn, they will have dropped 25-30%, with drops of as much as 50% in some heavily speculative markets such as much of California. This is an exceptional outcome by US standards, ranking with the 1930s as a house price downturn, but it must be remembered that in Japan Tokyo house prices dropped by over 70% from their 1990 peak before stabilizing.
The depth of house price declines has a near-exponential effect on mortgage defaults, since a borrower can walk away from a home mortgage without declaring bankruptcy - the transactions are generally non-recourse. Roubini estimates that if house prices decline 20% 16 million mortgages would be "under water" with principal amount greater than the value of the underlying asset, and that 50% of those underwater mortgages will default. If house prices decline 30%, 21 million mortgages will be underwater, with the same percentage defaulting.
At the lower price decline, that seems to me a little pessimistic. A borrower who can make payments on his mortgage, and whose house is temporarily worth 5% or even 10% less than the mortgage is unlikely to default, if only because he has to live somewhere and moving costs, let alone real estate brokerage costs, are substantial (he would also damage his credit rating.) Thus once we get beyond the universe of people who should never have had a mortgage in the first place, a moderate decline in house prices does not necessarily hugely increase defaults. However as price declines approach the 25-30% level, let alone the 50% that is possible in California, the percentage of mortgages defaulting is likely to rise sharply.
It is clearer now than it was a year ago that losses in housing debt will not be isolated. They will lead to losses in credit cards, leveraged corporate loans, automobile loans and most areas of the credit economy. Even emerging market debt, at first sight insulated from the problem, is in practice endangered by its concentration in Latin America and Russia, both dependent either on the US economy itself or on the high oil prices to which US easy money policies have led. Finally credit default swaps, with an outstanding volume of an extraordinary $50 trillion, appear to be an accident waiting to happen. Thus a mere $1.5 trillion in housing debt losses may indeed produce total losses of $3 trillion or more when collateral damage is included.
Not all of those losses will be felt by financial institutions, although the extraordinary appetite for risk that such institutions have exhibited over the past decade suggests that a high proportion of them may indeed come to rest in the financial area. If that is the case, we have a problem: the total capitalization of the US banking and brokerage system is only about $1 trillion.
The Bear Stearns intervention on Friday was a first symptom of what we can expect. (The Northern Rock disaster in London was a case simply of appallingly inept regulation of a bunch of hyper-aggressive used-car salesmen who moved into the home mortgage business.) Bear Stearns, while not without its reputation for sharp elbows, is a major house with an important market position. It was more concentrated in the mortgage business than several of its competitors, but that may simply have led the tsunami now approaching the world’s financial system to reach Bear Stearns first.
No exemption
If Roubini is anything close to right as to the total size of the disaster, and it spreads as appears likely to areas beyond mortgages, then there is no reason to believe that any of the world’s major financial institutions is exempt, although in practice some of them will have been exceptionally conservative in their adoption of new financial techniques or will have concentrated their business in areas such as emerging markets that are relatively less affected.
As the mortgage blow-up has shown, many of the "modern finance" techniques that have been designed in the last 30 years have shown themselves fatally flawed. Of all such innovations, probably the one posing most current danger for the world’s financial system is the credit derivatives market.
Like most modern finance products, credit derivatives were marketed as hedges. A bank could reduce its credit exposure to a particular borrower by entering into a contract whereby another bank would make payments to it if the borrower fell into bankruptcy.
Needless to say, once Wall Street's trading desks got hold of credit derivatives, all thought of hedging was lost. Instead of selling a credit exposure once, banks sold it 10 times, or even 20. Instead of selling credit exposure to another bank or an insurance company, which would be able to handle the credit exposure and could be relied upon to pay up in case of trouble, credit derivatives traders sold credit derivatives to hedge funds, private equity funds and any riff-raff that walked in off the street.
As a result, the credit derivatives market is a time-bomb waiting to explode. It will remain quiescent while credit losses on the underlying loans are low or moderate, but at some point rising credit losses on the underlying loans will be multiplied by the credit default swap mechanism to produce a payment requirement that is several times the size of the underlying defaulted loans.
Theoretically, that mega-payment requirement would be offset by mega-profits in other corners of the web of counterparties. In practice, the losses are likely to be large enough to cause counterparties to default, particularly if they are "men of straw" such as hedge funds, so the profits will prove ephemeral while the losses prove all too real. Losses of even a modest fraction of a $50 trillion principal amount would bring down most of the banking system.
It is in this context that the Bear Stearns crisis must be viewed. When the Knickerbocker Trust went bankrupt in 1907, J P Morgan was able to bail out the banking system because the Knickerbocker had limited relationships with other banks. Even when Drexel Burnham went bankrupt, the authorities were able to solve the problem by allowing a two-stage process, whereby the expansionist Michel Milken and other top management were removed in March, 1989, while the institution continued to do business on a sharply reduced basis before its final bankruptcy in February, 1990. This was hard on Drexel's shareholders, who might well have salvaged something substantial from the wreckage if Drexel had been forced into Chapter 11 early enough, but it was good for Drexel's network of counterparties, who were given time to get out.
As the above discussion has shown, the network of counterparties for a major house such as Bear Stearns is now many times the size and complexity of that constructed by Drexel and poses huge systemic risk. Bear Stearns may not be too large to fail, and it has no depositors requiring insurance of their money, but its network of interlocking obligations is far too complex and extensive to allow it to cease payments.
The Fed is doing everything it can to stave off disaster, but frankly, it is not rich enough. With assets of about $800 billion, having instituted $400 billion of rescue programs in the last week plus unspecified intervention with Bear Stearns, it is pretty nearly tapped out. It does of course have available a further source of liquidity, the Federal printing press. With inflation already moving at a brisk trot, use of that source will replace an incipient recession with a deeper and highly inflationary recession.
Thus the participants in the AEI seminar were misguided in touting Treasury bonds as the last safe haven. In an era of inflation, long term Treasury bonds yielding less than 4% are not a safe haven, they are a guaranteed route to loss, particularly for any investor so unfortunate as to pay tax. The fact that five-year Treasury Inflation Protected Securities now yield less than zero, even though the inflation figures on which they are based are comprehensively fiddled, is a sufficient indication of the incredible laxity of current monetary policy.
Of course, since house prices peaked at about 45% above their equilibrium level, a 30-40% burst of consumer price and wage rises, perhaps two years at 15% inflation, may be just what is needed to bring house prices and incomes back into balance. In an era of very cheap money, all investments are overvalued (the stock market still has much further to fall) but Treasury bonds are perhaps the poorest buy of all.
This is not a pretty picture. The losses to come are probably large enough to wipe out the banking system, and the interconnected network caused by modern finance is sufficiently fragile that the failure of any one major house, if carried out through normal bankruptcy processes, would be sufficient to bring down the world economy as a whole.
It is as if the US power grid had been installed without fail-safe mechanisms, so that a local outage caused by a snowstorm in Vermont or a hurricane in Florida could cascade through the whole system and wipe out power service for the entire United States. Needless to say, failsafe mechanisms have been put in place precisely to prevent such an occurrence.
When we dig ourselves out from what seems likely to be an unprecedented banking system catastrophe, we will no doubt design similar mechanisms to prevent contagion throughout the banking system. They will destroy much legitimate business, just as did the 1933 Glass-Steagall Act, which de-capitalized the investment banks, making it almost impossible for companies to raise debt and equity capital for the remainder of the 1930s.
The barriers to new business caused by the new control regulations will be the last but by no means the least of the enormous costs imposed on mankind by the crack-brained alchemists of modern finance.
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found at www.greatconservatives.com.
(Republished with permission from PrudentBear.com . Copyright 2005-07 David W Tice & Associates.)
Tuesday, March 25, 2008
A Note from Michael Moore - IRAQ
A Note from Michael Moore – IRAQ
So? ... A Note from Michael Moore
Monday, March 24th, 2008
Friends,
It would have to happen on Easter Sunday, wouldn't it, that the 4,000th American soldier would die in Iraq. Play me that crazy preacher again, will you, about how maybe God, in all his infinite wisdom, may not exactly be blessing America these days. Is anyone surprised?
4,000 dead. Unofficial estimates are that there may be up to 100,000 wounded, injured, or mentally ruined by this war. And there could be up to a million Iraqi dead. We will pay the consequences of this for a long, long time. God will keep blessing America.
And where is Darth Vader in all this? A reporter from ABC News this week told Dick Cheney, in regards to Iraq, "two-thirds of Americans say it's not worth fighting." Cheney cut her off with a one word answer: "So?"
"So?" As in, "So what?" As in, "F*** you. I could care less."
I would like every American to see Cheney flip the virtual bird at the them, the American people. Click here and pass it around. Then ask yourself why we haven't risen up and thrown him and his puppet out of the White House.
The Democrats have had the power to literally pull the plug on this war for the past 15 months -- and they have refused to do so. What are we to do about that? Continue to sink into our despair? Or get creative? Real creative. I know there are many of you reading this who have the chutzpah and ingenuity to confront your local congressperson. Will you? For me?
Cheney spent Wednesday, the 5th anniversary of the war, not mourning the dead he killed, but fishing off the Sultan of Oman's royal yacht. So? Ask your favorite Republican what they think of that.
The Founding Fathers would never have uttered the presumptuous words, "God Bless America." That, to them, sounded like a command instead of a request, and one doesn't command God, even if they are America. In fact, they were worried God would punish America. During the Revolutionary War, George Washington feared that God would react unfavorably against his soldiers for the way they were behaving. John Adams wondered if God might punish America and cause it to lose the war, just to prove His point that America was not worthy. They and the others believed it would be arrogant on their part to assume that God would single out America for a blessing. What a long road we have traveled since then.
I see that Frontline on PBS this week has a documentary called "Bush's War." That's what I've been calling it for a long time. It's not the "Iraq War." Iraq did nothing. Iraq didn't plan 9/11. It didn't have weapons of mass destruction. It DID have movie theaters and bars and women wearing what they wanted and a significant Christian population and one of the few Arab capitals with an open synagogue.
But that's all gone now. Show a movie and you'll be shot in the head. Over a hundred women have been randomly executed for not wearing a scarf. I'm happy, as a blessed American, that I had a hand in all this. I just paid my taxes, so that means I helped to pay for this freedom we've brought to Baghdad. So? Will God bless me?
God bless all of you in this Easter Week as we begin the 6th year of Bush's War.
God help America. Please.
Michael Moore
MMFlint@aol.com
MichaelMoore.com
THINK PROGRESS
http://thinkprogress.org/2008/03/19/cheney-poll-iraq/
Cheney On Two-Thirds Of The American Public Opposing The Iraq War: ‘So?’»
This morning, on the fifth anniversary of the Iraq invasion, ABC’s Good Morning America aired an interview with Vice President Cheney on the war. During the segment, Cheney flatly told White House correspondent Martha Raddatz that he doesn’t care about the American public’s views on the war:
CHENEY: On the security front, I think there’s a general consensus that we’ve made major progress, that the surge has worked. That’s been a major success.
RADDATZ: Two-third of Americans say it’s not worth fighting.
CHENEY: So?
RADDATZ So? You don’t care what the American people think?
CHENEY: No. I think you cannot be blown off course by the fluctuations in the public opinion polls.
Watch it: http://thinkprogress.org/2008/03/19/cheney-poll-iraq/
This opposition to the war is not a “fluctuation” in public opinion. The American public has steadily turned against the war since the 2003 invasion. According to a new CNN poll, just 36 percent of the American public believes that “the situation in Iraq was worth going to war over — down from 68 percent in March 2003, when the war began.”
Even though he doesn’t care what the American public wants, Cheney still thinks he is able — and entitled — to speak for the American public. Last month, Cheney declared, “The American people will not support a policy of retreat.” If Cheney were actually listening to the “American people,” he would know that 61 percent actually supports the redeployment of U.S. troops.
So? ... A Note from Michael Moore
Monday, March 24th, 2008
Friends,
It would have to happen on Easter Sunday, wouldn't it, that the 4,000th American soldier would die in Iraq. Play me that crazy preacher again, will you, about how maybe God, in all his infinite wisdom, may not exactly be blessing America these days. Is anyone surprised?
4,000 dead. Unofficial estimates are that there may be up to 100,000 wounded, injured, or mentally ruined by this war. And there could be up to a million Iraqi dead. We will pay the consequences of this for a long, long time. God will keep blessing America.
And where is Darth Vader in all this? A reporter from ABC News this week told Dick Cheney, in regards to Iraq, "two-thirds of Americans say it's not worth fighting." Cheney cut her off with a one word answer: "So?"
"So?" As in, "So what?" As in, "F*** you. I could care less."
I would like every American to see Cheney flip the virtual bird at the them, the American people. Click here and pass it around. Then ask yourself why we haven't risen up and thrown him and his puppet out of the White House.
The Democrats have had the power to literally pull the plug on this war for the past 15 months -- and they have refused to do so. What are we to do about that? Continue to sink into our despair? Or get creative? Real creative. I know there are many of you reading this who have the chutzpah and ingenuity to confront your local congressperson. Will you? For me?
Cheney spent Wednesday, the 5th anniversary of the war, not mourning the dead he killed, but fishing off the Sultan of Oman's royal yacht. So? Ask your favorite Republican what they think of that.
The Founding Fathers would never have uttered the presumptuous words, "God Bless America." That, to them, sounded like a command instead of a request, and one doesn't command God, even if they are America. In fact, they were worried God would punish America. During the Revolutionary War, George Washington feared that God would react unfavorably against his soldiers for the way they were behaving. John Adams wondered if God might punish America and cause it to lose the war, just to prove His point that America was not worthy. They and the others believed it would be arrogant on their part to assume that God would single out America for a blessing. What a long road we have traveled since then.
I see that Frontline on PBS this week has a documentary called "Bush's War." That's what I've been calling it for a long time. It's not the "Iraq War." Iraq did nothing. Iraq didn't plan 9/11. It didn't have weapons of mass destruction. It DID have movie theaters and bars and women wearing what they wanted and a significant Christian population and one of the few Arab capitals with an open synagogue.
But that's all gone now. Show a movie and you'll be shot in the head. Over a hundred women have been randomly executed for not wearing a scarf. I'm happy, as a blessed American, that I had a hand in all this. I just paid my taxes, so that means I helped to pay for this freedom we've brought to Baghdad. So? Will God bless me?
God bless all of you in this Easter Week as we begin the 6th year of Bush's War.
God help America. Please.
Michael Moore
MMFlint@aol.com
MichaelMoore.com
THINK PROGRESS
http://thinkprogress.org/2008/03/19/cheney-poll-iraq/
Cheney On Two-Thirds Of The American Public Opposing The Iraq War: ‘So?’»
This morning, on the fifth anniversary of the Iraq invasion, ABC’s Good Morning America aired an interview with Vice President Cheney on the war. During the segment, Cheney flatly told White House correspondent Martha Raddatz that he doesn’t care about the American public’s views on the war:
CHENEY: On the security front, I think there’s a general consensus that we’ve made major progress, that the surge has worked. That’s been a major success.
RADDATZ: Two-third of Americans say it’s not worth fighting.
CHENEY: So?
RADDATZ So? You don’t care what the American people think?
CHENEY: No. I think you cannot be blown off course by the fluctuations in the public opinion polls.
Watch it: http://thinkprogress.org/2008/03/19/cheney-poll-iraq/
This opposition to the war is not a “fluctuation” in public opinion. The American public has steadily turned against the war since the 2003 invasion. According to a new CNN poll, just 36 percent of the American public believes that “the situation in Iraq was worth going to war over — down from 68 percent in March 2003, when the war began.”
Even though he doesn’t care what the American public wants, Cheney still thinks he is able — and entitled — to speak for the American public. Last month, Cheney declared, “The American people will not support a policy of retreat.” If Cheney were actually listening to the “American people,” he would know that 61 percent actually supports the redeployment of U.S. troops.
Monday, March 24, 2008
Why Eliot Spitzer was Bushwhacked
Why Eliot Spitzer was Bushwhacked
Asia Time Online - Daily News
Mar 20, 2008
Why Spitzer was Bushwhacked
By F William Engdahl
The spectacular and bizarre release of secret FBI wiretap data to the New York Times exposing the tryst of New York State governor Eliot Spitzer, the now-infamous client "No 9", with an upmarket call-girl had relatively little to do with the George W Bush administration’s pursuit of high moral standards for public servants. Spitzer was likely the target of a White House and Wall Street dirty tricks operation to silence one of the most dangerous and vocal critics of their handling of the current financial market crisis.
A useful rule of thumb in evaluating spectacular scandals around prominent public figures is to ask who might want to eliminate that person. In the case of former governor Eliot Spitzer, a Democrat, it is clear that the spectacular "leak" of the government's FBI wiretap records showing that Spitzer paid a high-cost prostitute US$4,300 for what amounted to about an hour’s personal entertainment, was politically motivated.
The press has almost solely focused on the salacious aspects of the affair, not least the hefty fee Spitzer apparently paid. Why the scandal breaks now is the more interesting question.
Spitzer became governor of New York following a high-profile record as a relentless state attorney general going after financial crimes such as the Enron fraud, and corruption by Wall Street investment banks during the 2002 dotcom bubble era. Spitzer made powerful enemies by all accounts. The former head of the large AIG insurance group, Hank Greenburg, was among his detractors. He was bitterly hated on Wall Street. He had made his political career on being ruthless against financial corruption.
Most recently, from his position as governor of the nation’s second largest state, home to its financial industry, Spitzer had begun making high-profile attacks on the complicity of the Bush administration in covertly arranging bailouts of its Wall Street friends at the expense of ordinary homeowners and citizens, all paid for by taxpayer funds.
Curiously, Spitzer, who had been elected governor in 2006, defeating a Republican by winning nearly 70% of the vote, has not been charged with any crime. However, the day the scandal broke, New York Assembly Republicans immediately announced plans to impeach Spitzer or put him on public trial were he to refuse to resign. Spitzer could be asked to testify in any trial involving the Emperors Club prostitution ring. But so far he hasn’t been charged with a crime.
Prostitution is illegal in most US states, but clients of prostitutes are almost never charged, nor are their names usually leaked in a case in process. The Spitzer case is in the hands of Washington and not state authorities, underscoring the clear political nature of the Spitzer "Watergate".
The New York Times said Spitzer was an individual identified as Client 9 in court papers filed last week. Client 9 arranged to meet with "Kristen", a prostitute who officially charged $1,000 an hour, on February 13 in a Washington hotel. Whatever transpired, Spitzer paid her $4,300, according to the official documents. The case is clearly political when compared with more egregious recent cases involving Republicans. Republican Mark Foley was exposed propositioning male interns in Congress and Rudolph Giuliani was discovered cheating on his wife, but no or few Republican calls for resignations were heard.
Why the attack now?
Spitzer had become increasingly public in blaming the Bush administration for the nation’s current financial and economic disaster. He testified in Washington in mid-February before the US House of Representatives Financial Services subcommittee on the problems in New York-based specialized insurance companies, known as "monoline" insurers. In a national CNBC TV interview the same day, he laid blame for the crisis and its broader economic fallout on the Bush administration.
Spitzer recalled that several years ago the US Office of the Comptroller of the Currency (OCC) went to court and blocked New York State efforts to investigate the mortgage activities of national banks. Spitzer argued that the OCC did not put a stop to questionable loan marketing practices or uphold higher underwriting standards.
"This could have been avoided if the OCC had done its job," Spitzer said in the interview. "The OCC did nothing. The Bush administration let the housing bubble inflate and now that it's deflating we're dealing with the consequences. The real failure, the genesis, the germ that has spread, was the subprime scandal," Spitzer said.
Fraudulent marketing and very low "teaser" mortgage rates that later ballooned higher, were practices that should have been stopped, he argued. "When mortgages are being marketed, there is a marketplace obligation to ensure the borrower can afford to pay back the debt," he said.
That TV interview was only one instance of Spitzer laying blame on the Bush Republicans. On February 14, Spitzer published a signed article in the influential Washington Post titled, "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers."
That article, laying clear blame on the administration for the development of the subprime crisis, appeared the day after his ill-fated tryst with the prostitute at the Mayflower Hotel. Just a coincidence? Spitzer wrote, "In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act pre-empting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks."
In his article, Spitzer charged, "Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."
Bush, said Spitzer right in the headline, was the "predator lenders' partner in crime". The president, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet. Spitzer wrote, "When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably."
With that article, Spitzer may well have signed his own political death warrant.
F William Engdahl is author of the book Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, about to be released by Global Research Publishing, and of A Century of War: Anglo-American Oil Politics and the New World Order, Pluto Press. He may be reached via his website, www.engdahl.oilgeopolitics.net.
(Copyright 2007 F William Engdahl.)
Asia Time Online - Daily News
Mar 20, 2008
Why Spitzer was Bushwhacked
By F William Engdahl
The spectacular and bizarre release of secret FBI wiretap data to the New York Times exposing the tryst of New York State governor Eliot Spitzer, the now-infamous client "No 9", with an upmarket call-girl had relatively little to do with the George W Bush administration’s pursuit of high moral standards for public servants. Spitzer was likely the target of a White House and Wall Street dirty tricks operation to silence one of the most dangerous and vocal critics of their handling of the current financial market crisis.
A useful rule of thumb in evaluating spectacular scandals around prominent public figures is to ask who might want to eliminate that person. In the case of former governor Eliot Spitzer, a Democrat, it is clear that the spectacular "leak" of the government's FBI wiretap records showing that Spitzer paid a high-cost prostitute US$4,300 for what amounted to about an hour’s personal entertainment, was politically motivated.
The press has almost solely focused on the salacious aspects of the affair, not least the hefty fee Spitzer apparently paid. Why the scandal breaks now is the more interesting question.
Spitzer became governor of New York following a high-profile record as a relentless state attorney general going after financial crimes such as the Enron fraud, and corruption by Wall Street investment banks during the 2002 dotcom bubble era. Spitzer made powerful enemies by all accounts. The former head of the large AIG insurance group, Hank Greenburg, was among his detractors. He was bitterly hated on Wall Street. He had made his political career on being ruthless against financial corruption.
Most recently, from his position as governor of the nation’s second largest state, home to its financial industry, Spitzer had begun making high-profile attacks on the complicity of the Bush administration in covertly arranging bailouts of its Wall Street friends at the expense of ordinary homeowners and citizens, all paid for by taxpayer funds.
Curiously, Spitzer, who had been elected governor in 2006, defeating a Republican by winning nearly 70% of the vote, has not been charged with any crime. However, the day the scandal broke, New York Assembly Republicans immediately announced plans to impeach Spitzer or put him on public trial were he to refuse to resign. Spitzer could be asked to testify in any trial involving the Emperors Club prostitution ring. But so far he hasn’t been charged with a crime.
Prostitution is illegal in most US states, but clients of prostitutes are almost never charged, nor are their names usually leaked in a case in process. The Spitzer case is in the hands of Washington and not state authorities, underscoring the clear political nature of the Spitzer "Watergate".
The New York Times said Spitzer was an individual identified as Client 9 in court papers filed last week. Client 9 arranged to meet with "Kristen", a prostitute who officially charged $1,000 an hour, on February 13 in a Washington hotel. Whatever transpired, Spitzer paid her $4,300, according to the official documents. The case is clearly political when compared with more egregious recent cases involving Republicans. Republican Mark Foley was exposed propositioning male interns in Congress and Rudolph Giuliani was discovered cheating on his wife, but no or few Republican calls for resignations were heard.
Why the attack now?
Spitzer had become increasingly public in blaming the Bush administration for the nation’s current financial and economic disaster. He testified in Washington in mid-February before the US House of Representatives Financial Services subcommittee on the problems in New York-based specialized insurance companies, known as "monoline" insurers. In a national CNBC TV interview the same day, he laid blame for the crisis and its broader economic fallout on the Bush administration.
Spitzer recalled that several years ago the US Office of the Comptroller of the Currency (OCC) went to court and blocked New York State efforts to investigate the mortgage activities of national banks. Spitzer argued that the OCC did not put a stop to questionable loan marketing practices or uphold higher underwriting standards.
"This could have been avoided if the OCC had done its job," Spitzer said in the interview. "The OCC did nothing. The Bush administration let the housing bubble inflate and now that it's deflating we're dealing with the consequences. The real failure, the genesis, the germ that has spread, was the subprime scandal," Spitzer said.
Fraudulent marketing and very low "teaser" mortgage rates that later ballooned higher, were practices that should have been stopped, he argued. "When mortgages are being marketed, there is a marketplace obligation to ensure the borrower can afford to pay back the debt," he said.
That TV interview was only one instance of Spitzer laying blame on the Bush Republicans. On February 14, Spitzer published a signed article in the influential Washington Post titled, "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers."
That article, laying clear blame on the administration for the development of the subprime crisis, appeared the day after his ill-fated tryst with the prostitute at the Mayflower Hotel. Just a coincidence? Spitzer wrote, "In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act pre-empting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks."
In his article, Spitzer charged, "Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."
Bush, said Spitzer right in the headline, was the "predator lenders' partner in crime". The president, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet. Spitzer wrote, "When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably."
With that article, Spitzer may well have signed his own political death warrant.
F William Engdahl is author of the book Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, about to be released by Global Research Publishing, and of A Century of War: Anglo-American Oil Politics and the New World Order, Pluto Press. He may be reached via his website, www.engdahl.oilgeopolitics.net.
(Copyright 2007 F William Engdahl.)
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