The Financial Crisis and who Picks up the Bill

It was indeed gratifying to learn in the May 14 Business  Section of The San Diego Union-Tribune that the federal government has ordered 16 of the nation’s largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon.  The article went on to say, “There will be civil money penalties.”

The U-T is to be commended for including a recent column by Kenneth Harney entitled “Borrower’s bill of rights on mortgage servicing would change the game” which enumerated the banks’ improprieties.  While the relief to struggling homeowners is welcome news, I agree with John Taylor, chief executive of the National Community Reinvestment Coalition that the government’s action is a year too late. It does little to help those now in foreclosure and those who have already been displaced.

Every elected representative in Congress, the state Assembly and Senate, County Board of Supervisors and city officials should demand that the Securities and Commodities Fraud Task Force pursue fraud of Wall Street derivatives, credit default swaps and collateralized debt obligations. They should do this with the objective of “clawing back” the hundreds of millions of dollars in compensation and bonuses paid to the Wall Street investment bankers and brokers. The Great Recession and financial crisis caused by the collapse of the housing market on Wall Street resulted in eroded value of our homes and neighborhoods due to abandoned houses and neglected lawns, serious underfunding of public and private pension funds, and soaring deficits of national, state and local governments due to loss of tax revenues, with devastating cutbacks to all agencies that serve the public.

The Wall Street investment bankers and brokers collected tens of million dollars in compensation by creating fraudulent securities, CDOs, and selling them to unsuspecting investors. Knowing the securities were very risky and “sub prime,” these same bankers bought insurance (credit default swaps) from AIG betting against the very securities they sold. With no regulation and very little collateral required of these Wall Street bets, AIG, the insurance giant deemed too big to fail, was bailed out by us, the taxpayers.  Then the executives of Goldman Sachs, Citibank, J P Morgan and others had the gall to award themselves huge bonuses.

With budget battles raging, the middle class should not shoulder all the burdens and make all the sacrifices due to the unrestrained, unregulated greed of Wall Street.