Voice of the White House March 26, 2007

“Sometimes one can discover fascinating facts in unexpected placed. In the Business section of the New York Times on March 26, we see an ad for an auction on page C9. It announced that Morgan Stanley Mortgage Capital, Inc. is auctioning off 13,200 residential mortgage loans on March 29. These mortgages were generated originally by NC Capital Corporation, New Century Mortgage Corporation, Home123 Corporation and New Century Credit Corporation. The aggregate face value of these items is $2.48 billion! What has happened is this: So-called “subprime” mortgages were made by these companies to persons with dubious, little or no credit. The initial lenders faked credit reports and persons holding them were often able to get a house with no down payment at all! What these lenders did next was to sell the mortgages to big Wall Street houses, take the money and run with it. The buyers had been bamboozled into thinking they had paper of value and when the time came to increase the payments, as they had every legal right to do, they quickly found out that the mortgages could barely make the small initial monthly payments and when the banks holding the paper, raised the rates, the holders were completely unable to pay (as the original mortgage brokers well knew) and the homes went into foreclosure and the Wall Street firms were stuck with billions of dollars of paper with nothing behind it but fake credit reports. Now, the small original lenders have folded up their tents, cackled with glee as they pocketed their loot and vanished into the night, leaving the respectable firms with billions in debt. This is as big a fraud as the rigged dot com frauds of the ‘90s. In that case, brokers would take an incorporated company, get their rich friends to buy large amounts of stock with the agreement they would, let us say, buy the stock at five dollars and sell out at twenty. Naturally, with huge purchases of an essentially worthless stock, the market reflected this and up the stock went. Eventually, because it had nothing behind it, gravity took over and it plunged, taking billions with it and doing damage to the American economy and the legitimate technical sector. Someone ought to compile a list of the names of the mortgage subprime lenders and publish it. My, I wonder if there would be anything in common?”

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