Well we have all had just about enough from Congress. Congress and the regulatory houses did not just make a few mistakes. They were absent and its time for you to make them accountable at the polls. What am I talking about?

Remember Fannie Mae, Freddie Mac, Bear Sterns, and Lehman Brothers? Great American institutions and everything is going to be just fine until it isn’t. There are people in office and at the Securities Exchange Commission (SEC) that represent that they will look after the markets and ensure that it is fair for the little guy.

Fannie and Freddie were fine and about a month later they weren’t fine and had to be nationalized. Oh come on, conservatorship means insufficient capital as far as the eye can see and if you were a stockholder it means “toast”.

Bear Sterns is really what I am itching to talk about. Both Bear and Lehman were fine on a given Monday. Their CEO’s said they were adequately capitalized and they would be fine. What a pack of lies. The most recent statement came from Dick Fuld of Lehman Brothers. I am sure that Dick didn’t know about the 45 to 1 leverage, or that no one in God’s creation wanted to buy them, or that the leveraged residential and commercial mortgage paper was no good. His parents knew long ago and that is why they named him appropriately “Dick”. How does it feel to be a Lehman Brothers stockholder? I would like to see guys like this go to jail. Where the hell is Sarbanes Oxley?

This brings me to Bear Sterns. Bear was a similar situation and in my opinion based on personal experience more of a culprit than Lehman. Based on what I am about to share with you Bear should be out of business and Lehman should have been saved. Although who am I to make all this stuff up? It must have just been a dream. I had a dream that we were selling significant qualities of mortgage paper to Bear Sterns. Under the cover of the insurance agencies and their backhanded triple A rated deals the mortgage paper was garbage and the regulators were blind to what was taking place. In 06 & 07 Bear Sterns was pushing the financing envelope beyond anyone’s imagination. No one was coherent or even present to question it.

Enter the “Straw Buyer”. If you can sell anything in a pool of mortgages on Wall Street and the government doesn’t care then why should you? Bear Sterns did exactly this, at least as far as my dream goes.

The Straw Buyer is a person with good credit and a job that joins an investor group and writes a contract for the purchase of a property. This person has no money but they do have good credit and a job. To Bear Sterns this was an opportunity to find a way to give this person a loan. Why worry about underwriting guidelines like “reserves” or “skin in the game”. Let’s let the people find somebody else’s money and we will give them a loan. Let me clarify, not just any loan, how about a loan up to $1,000,000 with no income verification and only four credit trades with a 12 month history. You only need guidelines if you have to convince the market that is buying the paper that it is good paper. If there is no threshold to raise the money then do what ever you please. Wow!

How did the straw buyer get the loan if they had no money of their own? What lender would create a mortgage program that would allow this under any type of protective underwriting guidelines? Bear Sterns wanted to fill more pools of securitizations to Wall Street so they allowed loans to straw buyers who were members of investor clubs. The investor clubs would have a couple accounts with a couple hundred thousand dollars in them. These account statements would be shared with multiples of borrowers accompanied by a letter from the investment club that stated the buyer was a member and had the rights to the funds. Wow again!. The straw buyer would buy the house and the investor club would make the payments as long as the real estate market continued to go up. Properties were sold and the club and the straw buyer shared the profit. If the real estate market cracked and the club got caught with the property the straw buyer agreed to take the foreclosure and stick the problem to the lender. That is exactly what happened.

This was a great gig for the straw buyers and the investment clubs. Well now that the party ended and the wave of delinquencies and foreclosures has hit us, everyone is blaming the homeowners. The homeowners must just be stupid or is there something else that nobody wants to talk about. Bear Sterns never should have allowed any perspective buyer to obtain a mortgage without their own money. This is pure unadulterated greed and they got away with it while the regulators were literally asleep at the wheel.

What a dream that was. I wouldn’t want to claim it to be more than fiction because it may really look bad and interfere with all the photo ops Congress likes to enjoy. Heaven forbid that anyone at the SEC should have to actually earn their paychecks. Showing up for work and cashing them is more in line with reality.

When you vote you should know the extent that our country’s leadership was absent. This was despicable. Let’s vote these idiots out of office and bring accountability and prudent underwriting guidelines back. I am voting for experience and strong track records that can be validated. Go forward on November 4th and make your vote count.

What do you think? This is America and I am tired of this crap.

GHunter

Submitted on Sunday, October 26th, 2008 at 4:07 pm