Bank of America Secretly Asking Congress for a Banking Industry Bailout; $739 Billion Worth of Toxic Waste Subprime Loans Threaten Entire System

February 24th, 2008

Via: New York Times:

Over the last two decades, few industries have lobbied more ferociously or effectively than banks to get the government out of its business and to obtain freer rein for “financial innovation.”

But as losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion.

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.

In practice, taxpayers would almost certainly view such a move as a bailout. If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s. The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers.

A rescue would also create a “moral hazard,” many experts contend, by encouraging banks and home buyers to take outsize risks in the future, in the expectation of another government bailout if things go wrong again.

If the government pays too much for the mortgages or the market declines even more than it has already, Washington — read, taxpayers — could be stuck with hundreds of billions of dollars in defaulted loans.

But a growing number of policy makers and community advocacy activists argue that a government rescue may nonetheless be the most sensible way to avoid a broader disruption of the entire economy.

Posted in Economy | Top Of Page

3 Responses to “Bank of America Secretly Asking Congress for a Banking Industry Bailout; $739 Billion Worth of Toxic Waste Subprime Loans Threaten Entire System”

  1. cryingfreeman says:

    It will be interesting to see how this pans out, given that the globalists have no desire to see any semblance of a homeowning middle class left standing.

  2. RuralNinja says:

    Oh yeah…Market capitalism. Its always the same song: let us be, free markets (like in criminal black markets eh?) will sort it out..But then corporations do like educated workers, theyd like to have some roads and bridges so they can ship their stuff, oh yes water and sanitation would be nice too..And some taxcuts would be nice…Social responsibility? Why thats not our problem! Just keep the aid coming when we eventually do mess it all up big time gambling on our casino..

    This is happening all around the world again. Already Britain and Germany have banks being bailed out by the state.

    In the beginning of the 90s many banks went under in my home country as well. Yup, state bailed em out – and even thou this country is called a democracy, the numbers are still secret – how much taxpayer money was used, and how cheaply were the banks sold?

    A few years later a similar thing happened with a part-national telephone company – they wasted billions in buying operating frequencies abroad that they havent used to this day…And taxpayers to the rescue..

    Somebody gave a nice idea in another conversation – punishing corporations for serious misdeeds (economic or otherwise) by simply dismantling them and revoking their corporate charters. That should soon teach em a lesson. Heres hoping Ill live to see that day when justice is served to those imaginary people known as corporations as well.

  3. anothernut says:

    The members of the corporate oligarchy know how the game is played, and they’re not about to stop playing it now. “Privatize the profit/socialize the risk” has been and continues to be their simple, and very effective, formula. As cryingfreeman pointed out, this is another way to squeeze the money out of the bottom 99%, along with insane commodity prices and of course the ever-insatiable, every expanding war machine.

    I have to say, tho, that I was happy to see the Times publish something that finally justified their detractors’ accusations of being part of the “liberal media”. We desperately need some truly liberal media, if that means shining some light on the unprecedented corruption that’s destroying our world.

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