US Gone Bad: Ugly Battle - TBTF Banks v Insurance Cos re NEITHER'S Due Diligence

Since 2000 US in crises in 6 areas: financial/economic/ideological/political/intellectual/media Now ugly fight btwn two TBTF groups: banks & insurance companies, saying other shd pay 4 bad housing loans BOTH admit consciously did NO due diligence
 
Oct. 6, 2010 - PRLog -- By David Caploe PhD, Chief Political Economist, EconomyWatch.com.

For a long time, we have argued the US has been in a sustained crisis since the beginning of the year 2000.

Put simply, the US has been enmeshed in simultaneous crises in six major areas of public life: financial / economic / ideological / political / academic-intellectual / and media.

This disaster can be dated from the crash in tech stocks in high-tech stocks in the spring of 2000,

continuing through the blatant Republican judicial coup in Bush v Gore

that handed the Presidency to a man who had clearly lost both the popular and electoral college vote,

but nevertheless went on a rampage against the rest of the world even BEFORE the tragedy of 9/11 gave him - at least for a while - the popular backing to do so.

The mess went on with outrages like the opening of the Guantanomo Bay "black prison", the completely anti-American Patriot Act -

which the Obama regime has yet to dismantle, despite its election promises -

and capped off by the unspeakably cynical invasion of Iraq,

which, despite the good it did for the Shiites and Kurds who had suffered under the murderous hand of Saddam Hussein,

was nevertheless undertaken basically to award unprecedently huge no-bid government contracts for work that, as we have shown, was usually never done,

to past and future employers of Cheney, Bush and the now practically forgotten Donald Rumsfeld,

above all construction giant Halliburton and the vicious mercenaries Blackwater,

both of which fled US for the Middle East before the end of the Cheney / Bush nightmare,

in fear of prosecution by future Democratic administrations.

Sadly, they could have saved themselves the moving expenses.

They clearly had little to fear from the Obama regime, which has, to all intents and purposes,

continued the fundamental policies of Cheney / Bush, above all, when it came to dealing with the rapacious financial sector,

whose carelessness and indifference brought not just the US but the entire world to the brink of disaster,

and has now enmeshed the rich world - the US and EU - in a brutal stagnation of joblessness and human suffering that shows no sign of ending any time soon.

In this context, it comes as no surprise to see how two of the chief beneficiaries of these deeply misguided policies -

supported, it must be admitted, by a significant and active minority of the American people -

the Too-Big-To-Fail, or TBTF, banks and insurance companies are now involved in a vicious battle with each other

over who's going to pay for the disastrous situation they co-created in the US housing market during the years up to Black September 2008,

when the failure of Repo 105 Lehman Bros created a global financial crisis unseen since the stock market crash of 1929 & ensuing Great Depression.

The story we are about to relate is simultaneously pathetic and enraging:

pathetic, because it's clear that supposedly "responsible" institutions were anything BUT that for decades;

enraging, because it's equally obvious that neither sector, even now, is willing to take responsibility for their outrageous actions.

Put bluntly, it has become clear that the US mortgage industry was in a state of lawless anarchy for years.

Many billions of dollars in home loans were sold, guaranteed and rated as safe

without anyone bothering to examine whether the loans were made with due regard for the rules.

Already the four big commercial banks — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup —

have taken losses of $9.8 billion on loans they have repurchased or expect to be forced to repurchase.

Moshe Orenbuch, an analyst at Credit Suisse, says he thinks that figure will rise to $20 billion or $30 billion before the wave is over.

Other analysts think the number could be significantly higher.

You can make a case — call it the caveat emptor case — that no one should be able to recover any losses they suffered from loans that went bad.

If they had performed even rudimentary checks before the loans were made, sold, rated, insured or securitized - that is, made into DERIVATIVES -

it’s very likely that big problems would have been visible before disaster hit.

There would have been fewer bad loans and many fewer foreclosures.

That case is not, however, showing any sign of prevailing as legal battles between the TBTF banks and insurance companies, amazingly, continue to proliferate.

Indeed, much to their shock, it appears that big banks will be compelled to pay for their own sins - as well as, possibly, the sins of others.

Even now, long after we learned just how bad the underwriting standards were, it is unbelievable and disturbing to see how bad many of these loans were.

In the second quarter, Wells Fargo repurchased $530 million of mortgage loans.

It concluded those loans were worth, on average, a little less than half their face value.

Wells says it has the right to recover some of that from the companies that sold it the loans.

Unfortunately, “due primarily to the financial difficulties of some correspondent lenders,

we typically recover on average approximately 50 percent from these lenders,”

Wells added in a filing with the Securities and Exchange Commission.

Don't you feel bad for Wells ???

So far, most of the money the banks have paid has gone to Fannie Mae and Freddie Mac,

which used to be government-sponsored enterprises and now, after the bailouts, are government-controlled.

But even though they have collected billions, Fannie and Freddie are getting increasingly frustrated with the banks for what they see as foot-dragging.

Remember, they are now owned by the same government that SAVED these banks WITHOUT requiring any major changes in the US financial system.

Freddie, in its quarterly report filed this month, said it was now requiring banks

“to commit to plans for completing repurchases, with financial consequences or with stated remedies for noncompliance,

as part of the annual renewals of our contracts with them.”

A spokesman for Freddie would not say just what those remedies or financial consequences might be.

But any bank that wants to keep offering mortgages MUST have contracts with Fannie and Freddie.

We'll repeat that:

Any bank that wants to keep offering mortgages MUST have contracts with Fannie and Freddie.

Tying the repurchases to contract renewals could be a strong bargaining chip.

"Could" being the operative word - after all, we see how easily the Obama group can be bullied

by any group that has either sufficient numbers or money into doing what those groups want them to do ...

To read more at http://www.economywatch.com’, go to:

http://www.economywatch.com/economy-business-and-finance-...

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