This seems so crazy to me. I don't think I can possibly be right, but this is the way I understand what has happened. If you understand this better than I, please let me know where I am wrong.
So, basically,
1) These banks loaned money for mortgages to people who could not afford the mortgages.
2) The easy money caused the prices of housing to rise to levels not commensurate with rises in wages.
3) The banks took fees and other money when they gave the new mortgages.
4) The banks got investors to back up the mortgages with the investors' money.
5) The banks leveraged the investors' money into big profits through various insurance scams.
6) The bankers paid themselves huge salaries and bonuses out of the profits from the raging housing market.
7) The bankers raised interest rates pursuant to certain clauses in the homebuyers' mortgage contracts.
8) Many homeowners found themselves unable to pay the new, higher interest rates. (Surprise!)
9) The bankers declared the market a bust.
10) Housing prices went down.
11) The bankers insisted on charging the higher interest rates and foreclosing rather than rewriting the mortgages.
12) The bankers claimed a market bust.
13) The bankers turned to the government for help.
14) The bankers exchanged the now worthless houses to the government for the bail-outs and repaid their foreign investors and investing banks (each other) in full out of the government money,
15) And now -- those same banks which are the biggest megabanks in our system get to buy back the worthless properties that they sold to the government at inflated prices -- for market, post-foreclosure prices.
That is brilliant. What a scam. At each step, the banks made huge profits. And they stand to make even more now that they get to buy the "toxic assets" at low, low, going out of business sale prices.
And, maybe the best part is that, out of fear that the markets would crash, the Fed lowered its interest rates to next to nothing, while those same bankers that caused this collapse raised the interest rates on consumer debt, especially credit card debt and lowered interest paid to consumer depositors.
There is something wrong here. I don't think we are being told what is really going on. Is the real story that China is withdrawing or has threatened to withdraw its support for our economy? Why haven't we made the bankers disgorge the profits they took in compensation during the good years to cover the banks' debt?
Can someone please correct my analysis. Am I wrong here?
If I am right to any extent, these guys belong in jail, every single one of them. And Geithner (and Obama with regard to this bail-out business, sorry to say) and Bernanke are idiots and should be replaced.
Added support info: Citigroup profit in 2005 was $24.6 billion.
http://www.usatoday.com/money/companies/earnings/2006-01-30-exxonmobil_x.htmGoldman profits and executive bonuses soared in the 2006.
The figures were certainly good news to the scores of Goldman bankers and traders who will find out, starting today, what their bonuses will be. Chances are good they will be impressive: the bank is paying $16.5 billion in compensation this year, or roughly $623,418 for every employee.
Wealth on Wall Street is not distributed evenly, of course. Rainmakers in investment banking can expect to see $20 million to $25 million each while traders who booked big profits will take home a chunk of those profits, up to $50 million apiece, according to senior executives at leading Wall Street banks.
“Anyone at the bonus line at Goldman Sachs died and went to bonus heaven,” said Michael Holland, chairman of Holland & Company, a New York-based investment firm. “It doesn’t get any better than this.”
http://www.nytimes.com/2006/12/13/business/13place.html?ref=business&pagewanted=allWonder where Goldman plans to find all those private investors? They probably have to look no further than the corner and front offices in their own firm.
This chart compares the profits of the various banks and investment groups for 2006
http://money.cnn.com/magazines/fortune/fortune500/snapshots/575.htmlGoldman Sachs shows revenues of $43,931 million 70 54.5% from the previous year
Profits are stated as $5,626 million (and they paid $16.5 million in bonuses?)
Assets are listed as $706,804 million.
This list shows that both Morgan Stanley and Merrill Lynch did even better than Goldman in 2006.
And we are bailing them out? These banks should have turned to their own executives and former executives for help before turning to the U.S. government. Who is getting rich here? This is a swindle of massive proportions. These banks are not in trouble. no way. The money is in Switzerland, the Cayman Islands or some other tax havens.
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