ForclosureGate (circa 2010 forward): Widespread mortgage fraud as a result of an unregulated, rigged housing market guaranteed to create a collapse and waves of foreclosures, all of which leads to major hardship for homeowners and their families.
(Washington, DC) Wall Street created the subprime mortgage crisis leading to the 2008 financial meltdown and ongoing recession. That cost trillions in homeowner net worth, near depression era unemployment levels, and a relentless struggle for the people. As a reward for their greed and incompetence, the authors of the financial crisis got trillions in Federal subsidies to stay afloat, receive huge bonuses, and plot to do it all over again. Goldman alumnus and foreclosure machine maestro Steven Mnuchin is set to usher in a new golden era for Wall Street greed as Donald Trump’s Secretary of the Treasury. (Image)
Donald J. Trump is the first major party candidate to run for president of the United States using populist rhetoric since William Jennings Bryan in 1896. Just enough of the public craved payback for 2008 financial meltdown to give billionaire populist Trump the edge in that anachronism known as the Electoral College.
Trump repeatedly promised to drain the swamp in the nation’s capital and remove insiders, special interests, and the usual suspects that serve themselves so well at the expense of the people. Who better to target than perennial Washington insiders, the Wall Street investment-banking firm of Goldman Sachs, believed by many to be one of the key authors of the 2008 financial meltdown? In Trump’s campaign for the Republican nomination, he excoriated Ted Cruz for his ties to Goldman:
"He forgot to say that Goldman Sachs gave him money. He forgot to say that Citibank gave him money. OK? Because he's the man of the people, he's Robin Hood, right? He doesn't want you to know that he borrowed from Goldman Sachs because let me tell you -- Goldman Sachs has him."
During the general election Trump made it clear that "the guys at Goldman Sachs have total control over Hillary Clinton."
But alas, Trump just named Goldman Sachs alumnus Steven Mnuchin as our next Treasury Secretary.
Even before assuming office, Trump’s swamp draining allowed Mnuchin to crawl out and take charge of the most important government department impacting the financial well being of we the people, the same Treasury Department conceived of and first led by Alexander Hamilton from 1789 to 1795.
Is Trump going back on his words?
Of course he is! Trump never meant a word of what he said when he attacked Goldman Sachs, Citibank, and the oligarch class. Trump is a made member of the oligarch cabal. President Barack Obama tipped his hand before he assumed office by naming his good friend, Wall Street insider, and friend of Goldman Goldman Timothy Geithner as Treasury Secretary. Trump just laid his cards out, face up, right in the middle of the table by appointing Mnuchin.
Steven Mnuchin was Trump’s chief fundraiser during the presidential campaign. Mnuchin was with Goldman Sachs for over 17 years. After Goldman, he put together a purchase of the failed IndyBank during the financial meltdown. Mnuchin used that position to foreclose on tens of thousands of homes. Andrew Prokop in VOX summed it up artfully in a headline: Steven Mnuchin: Trump's Treasury secretary pick is a banker with no known qualifications or views .
What’s the motivation for the Mnuchin appointment? ForeclosureGate II
Well Street investment banks pulled off the biggest theft in the history of this country as a result of the 2008 financial meltdown, a crisis that these very same investment banks helped create. Irresponsible lenders made a huge market for subprime loans (top 25 list), mortgage financing for home purchases by people with marginal to poor credit. Wall Street invented a financial product called derivatives in which these subprime loans were bundled and sold as high quality investments to large investors including many retirement funds.
The underlying premise was as simple as it was absurd: bundles of home mortgages given to people with marginal to poor credit represented a good risk for investors. Derivatives were sold again and again all over the world. Perversely, the active market for these products created by smart guy investment firms gave false credence to the underlying quality of the loans.
In September 2008, we were told that the entire financial system was teetering, near collapse. Then Bush Secretary of the Treasury Henry Paulson, a former Goldman Sachs executive, began a financial bailout process that ended up totaling $14.4 trillion including all Treasury and Federal Reserve programs. (It Takes a Pillage, Naomi Prins)
Wall Street made tens of billions on the subprime loans and the lucrative derivatives market. When the market collapsed, Wall Street got trillions of dollars in government support because these firms were so vital to the economy. All the while, homeowners saw 40% to 60% of their home equity disappear. Federal Reserve data showed that “U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009.” Millions of families lost their homes to foreclosures during the post collapse period starting at the end of 2008. Many more labored, some to this day, with mortgages well in excess of their home values, literally under water to their loan.
The Wall Street driven recession of 2008 did more than trash home values, homeowner equity, and household wealth. Official unemployment rose to 10% (U3), the more realistic government measure including marginally employed rose to over 17% (U6), while the most accurate measure of those unemployed from Shadow Statistics hit nearly 25%. All thanks to the reckless and ruinous schemes perpetrated by investment bankers like Goldman.
Wall Street wins. You loose. Why will it any different this time around?
Goldman Sachs was right in the middle of the meltdown making sure that they were rewarded with government support to stay alive with a chance to do it all over again. In 2008, Treasury Secretary Henry Paulson, a former Goldman executive laid out the Wall Street welfare plan under Bush and put it in motion.
Former Goldman executive Timothy Geithner followed him as head of Treasury. Dutifully, Geithner made sure that the bailouts continued under President Obama.
Now, we have the new Goldman alumnus, Steven Mnuchin as Secretary of the Treasury.
What could Secretary of the Treasury have up his sleeve for the people?
Mnuchin – Key Participant in ForclosureGate
We don’t have to look to far into Mnuchin’s history to figure out the next financial beat down waiting for us.
After leaving Goldman and financing several Hollywood blockbusters, Mnuchin put together a group of investors to buy IndyBank, one of the biggest bank failures during the financial meltdown of 2008. The group got the bank for $1.55 billion and sold the bank CIT for $3.4 billion in 2014.
How did Mnuchin’s group do with their control of One West Bank (OWB), the new name for IndyBank acquired from the Department of the Treasury?
The California Reinvestment Coalition (CRC) put together a detailed report on One West Bank in opposition to an acquisition by CIT. The report cited six major deficiencies of OWB in the Mnuchin era:
1) Foreclosures that are located disproportionately in neighborhoods of color;
2) Weak home lending to Asian American and Pacific Islander (AAPI) and African American borrowers;
3) Low branch presence in Low and Moderate-Income (LMI) neighborhoods and neighborhoods of color;
4) Allegations of disparate REO [lender owned] property maintenance and marketing in neighborhoods of color, as compared to white neighborhoods;
5) Servicing and foreclosure practices impacting seniors and women, in particular, Non Borrower Spouses of deceased reverse mortgage borrowers; and
6) Arbitrary use of discretion in servicing reverse mortgages. CRC, June 15, 2015 Also see CRC's One West and CIT Group Merger Resource Center
How did Mnuchin’s OWB treat its customers? This is as good a prediction as we can get to preview what the new Treasury Secretary has in store for the public.
The CRC report cited surveys of housing counselors showing that OWB was listed as the “the worst offender for not offering affordable loan modifications, more than all fifteen of the other servicers surveyed.” Half of housing counselors surveyed in 2011 rated Mnuchin’s “OWB as terrible, a higher percentage than for all other eleven servicers considered.” By 2012, in the middle of the Mnuchin group era, “95% of responding counselors said OWB was terrible or bad.” CRC, June 15, 2015
There’s a sucker born every minute
At the end of the Clinton administration, consummate Wall Street insider then Treasury Secretary Robert Rubin and his successor Lawrence Summers helped unleash the derivatives market (e.g., mortgage backed securities) without any regulation by the Securities Exchange Commission or any other body. The two then worked to repeal the Glass-Steagall Act that prohibited banks from engaging in high-risk securities trading like derivatives. The unregulated market paired with reckless derivatives activities by banks was the set up for the financial meltdown.
When the market collapsed and a bailout was needed in a hurry, Goldman alum Henry Paulson was in charge at Treasury. friend of Goldman, Timothy Geithner, put the bailout in place and made sure every single billion of the $14.4 trillion bailout got to Wall Street.
The housing market looks better than it has been in years according to the Leading Index of Healthy Housing Markets (LIHHM).
The recovery is just in time for the appearance of Goldman’s third horseman of the apocalypse, Steven Mnuchin. In addition to the Wall Street pedigree, Mnuchin has battlefield experience squeezing investors and foreclosing on thousands of homes. What better setup do they need to pull off a sequel to the 2008 meltdown, ForclosureGate II?
It is all too convenient and all too irresistible.