Proof That Basel 2 Caused Ponzi Housing and Foreclosuregate

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Banking Community From Top Down Exposed

I get railed on now and then as I post at Seeking Alpha that off balance sheet banking allowed at Basel 2 in 1998 resulted in the ponzi housing bubble. One fellow who posts comments, Pier 0188, said while discussing Ellen Brown's Foreclosuregate article:

However, that doesn't get back to the truth. You know absolutely *NOTHING* about what you are blathering about online. You pretend to be erudite and literate, yet you are not a free thinker. You merely upchuck another cow's cud, another lost, blind, and senseless cow.

Well, Pier, moo to you too. I have never claimed to be erudite. I have never claimed to be an expert on the ins and outs of complex banking. However, I understand the crucial financial manipulations at work here. I do believe that the banks had a plan, through the repeal of Glass-Steagall which tore down the barrier between banks who had mortgages and investment banks who securitized the loans. This allowed the packaging of individual mortgages into infamous private mortgage backed securities.

I believe that the banks had a plan to operate with less capital with Fannie and Freddie guaranteeing all manner of subprime loans. We know that they did not guarantee jumbos and many alt a loans, but subprime they did guarantee. So Fannie and Freddie were essential to kick starting the scam. We have seen how their monstrous child, MERS, has attempted to run around state governments in corrupting the recording of proper documents and notes. So who were the main players in the scam?

1. the central banks like the Fed and the European Central Bank,

2. the mother bank of those central banks which is the Bank of International Settlements,

3. investment banks like Goldman Sachs, Merrill Lynch, Bear Sterns, Lehman Brothers,

4. commercial big banks, primarily JP Morgan, Citibank, Bank of America and Wells Fargo,

5. the GSE's, Fannie Mae and Freddie Mac, however the private mortgage chart reveals their influence was not central to the private mortgage MBS debacle as they pulled back,

6. Highly leveraged European Banks.


In 2004, Chris Whalen offered an explanation of the scam, and this almost predicted what would subsequently happen in the mortgage markets. Well, Whalen says that the risk models were Enronesque:

"Second, Basel II is built around a suite of risk analysis tools that are, at best, a reflection of market sentiment rather than an accurate opinion on a company's financial statement. In May 2004, the Bank for International Settlements issued a statement indicating that the Basel Committee had reached a consensus on the new risk framework for financial restitutions. The statement said in part: "Basel 11 represents a major revision of the international standard on bank capital adequacy that was introduced in 1988. It aligns the capital measurement framework with sound contemporary practices in banking, promotes improvements in risk management, and is intended to enhance financial stability."

Translated into simple language, the New Basel Accord proposes to use precisely those measures of risk and credit quality that caused such fiascos as Enron, WorldCom, and Parmalat, to name the most familiar names. The largest banks will employ risk models that are based on derivative indicators and academic assumptions about the statistical distribution of such events (defaults and restatements, for example) that do not accurately describe the real world.

We know that Enron ended very badly. We are seeing Chris Whalen warning of a very bad ending here from that 1998 off balance sheet banking model that Basel 2 applies now in 2004. Basel 1 of 1988 that took down the Japanese bubble was abandoned. Mr Greenspan came out as a "good" central bank soldier to proclaim that adjustable mortgages could be a "better deal" for homeowners, in February, 2004. So much for ever trusting a Fed Chairman ever again.

So that we are not limited to one analyst, we have the Wall Street journal in 2007 saying essentially the same thing. Thomas Greco of Beyond Money tracks that article and here is author Quigley's view:

If you don't believe the pre-meditation involved please read the quote below from the Wall Street Journal, Nov. 27th. 2007:


"In 1998 the Basle Accord created the opportunity for regulatory arbitrage whereby banks could shift loans off their balance sheets. A new capital discipline that was designed to "improve" risk management led to a PARALLEL BANKING SYSTEM whose lack of transparency explains how the market started to seize up.


The "originate-to-distribute" model REDUCED THE INCENTIVE for banks to monitor the CREDIT QUALITY of the loans they pumped into collateralized-


loan-obligations and other structured vehicles, the rules failed to highlight contingent credit risk""With Basle II, the question is just how the markets will evolve over the next 20 years". as the new accord will require banks to hold LESS CAPITAL".


The theme of the Wall Street Journal article is the same as Whalen's views. Less capital is required because we have loan guarantees from the government, from Fannie and Freddie as well as, which we find out later, from a private MBS explosion based on phony ratings. And this gets worse, as Basel 3 apparently wants permanent guarantees for loans from Fannie and Freddie.

The Tea Party Should Speak Out About Speculation Gone Wild

Government guarantees will subject greedy bankers to the temptation of writing bubble mortgages, at least starting with easy money ABS, knowing that they will be guaranteed by more and more bailouts by the government. That is probably why the Tea Party frightens both the Republicans and Democrats in their hatred of bailouts.

However, the Tea Party needs to understand that this scam was not just a Fannie/Freddie caused scam. Nor was it a borrower caused scam. The ponzi housing scheme had the highest level of finance, the central banks, in the middle of this scam, crafting it through Basel 2 and promoting it through Greenspan. They should speak out about speculation.

It is clear that MERS and the big banks are in the thick of denying due process to millions of foreclosed persons. If we understand that the ponzi housing scam was a form of speculation that was set up by the financial elite, then we must also note that none of these people would be underwater if the bankers had not set this scheme up in the first place.

Just like investment bank speculation led to false increases in prices for food commodities in 2007 and in the price of oil in 2008, so did this speculation set up by Wall Street and the central banks, and Fannie and Freddie lead to false increases in prices. People starved in West Africa in 2007, and the US consumer was hurt badly by oil prices going to $145 per barrel in February, 2008. There is a pattern here of hurtful speculation. The housing bubble was a speculation driven by mainstreet but set up by Wall Street and the financial elites.

Foreclosuregate is just the fallout of the speculation in mortgages. Rick Humphries has written and Whalen said on CNBC recently that the same mortgage was sold to multiple individuals, not being transfered to one person because the tranches determined who owned the loan after the fact, based on risk. Securitization got sloppy, as that was the nature of the beast. The handwriting was written on the wall in the beginning, and that handwriting does not confirm ownership as state and county governments require.

So then, the ponzi housing bubble and subsequent crash and the resulting foreclosuregate were all the result of a premeditated scam. What a dark period in American history are we experiencing by almost any standard.

Your House Payment Is Possibly Not Being Properly Recorded

The Content of This Website Is Original to Hubpages

This content was originally published at hubpages.com and I shared it as a contributor to Business Insider. Subsequently, Google Panda, a search engine formula, punished this original content as being duplicate content. It is not. Basel 2 was an evil attack upon the citizens of the United States and I will continue to expose it for what it is.

People Buying More House Than They Could Afford Was Part of the Scam!

I am always amused when less-than-critical thinkers come up with the better-than-you view that people bought more house than they could afford while the arrogant guys are saying they were better. They figured it out and didn't buy more house than they could afford. To these bank scammed thinkers who are falling for the bankster argument there is an easy answer. You see, they fail to understand that It has always been the responsibility of underwritersto make sure that you didn't buy more house than you could afford. In fact, underwriters had the interest of the bank at heart, and knew that the bank could not make money if people bought more house than they could afford.

But this is where many Tea Party types have gone wrong in their mucked up attempt at understanding this crisis. The originate to distribute model made underwriting unnecessary as a means for banks to make money. They were passing off loans that they knew were sub par, by hiding the notes, hiding the facts of the loans, from investors. Then the investors bought these so called AAA bonds made up of all these crap mortgages, and we wonder why the banks are near failure but for taxpayer bailouts.

The shadow banks created by that BIS analysis at Basel 2, way back in 1998, started to apply easy money, no doc loans in 2004 as planned by the central banks. They never told people that underwriting was no longer important or sound. So, don't blame the borrowers, because you had David Lereah of NAR, and other real estate experts, saying that you need to get in the market because real estate rarely goes down in value! People were told they had to get in before prices went up or they would be shut out of the market! Even Greenspan said it was a better deal to buy an adjustable. Don't blame the borrowers because the banks stopped underwriting on purpose. House prices went up which what banks wanted because underwriting was abandoned. This was part of the scam, don't you see?

If you look at it this way, you can grasp the magnitude and blame regarding this scam. I posted this at Neil Garfield's great blog:

"When you take the policemen away, the underwriters, you are going to have a free for all. The policemen watched out for the interests of the banks. For the banks to get rid of these policemen is proof that the ponzi housing scam was preplanned and that borrowers are victims of a sophisticated scam."

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Comments 17 comments

justom profile image

justom 5 years ago from 41042

I couldn't agree more, these folks are systematically killing the country and probably a lot of the world. Sad to say I'm a victim of the foreclosure scam. Shame on the greed!! Great info! Peace!! Tom


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Hey Tom, check out my foreclosuregate link here to see what you can do about filing for damages against the banksters.


justom profile image

justom 5 years ago from 41042

Thanks, I'll check it out.


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Be sure to tell your friends to fight for a settlement and hold these banks accountable.


eovery profile image

eovery 5 years ago from MIddle of the Boondocks of Iowa

Very interesting concept. Who passed the bills to allow this ponzi scheme to occur?

Keep on hubbing!


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Hey, Eovery, actually both Republicans and Democrats voted to overturn Glass-Steagall. That vote was 90 to 8 in the senate, with only a few like Boxer and Feingold opposing it.


Micky Dee profile image

Micky Dee 5 years ago

Great post again bgamall. It's all so sordid and we learn too much every day. It's hard to keep up with the wierd actions of years ago. God bless!


Hello, hello, profile image

Hello, hello, 5 years ago from London, UK

They definitely roped the England in and I am also up against it. Fighting like hell.


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Yes, these bad MBS were sold throughout the world, and to many English banks.


albertpaul68 5 years ago

Thanks for your article. Google


Anonymous Comment 5 years ago

Dear Sir,

Please forgive my bluntness. When you say that Basel 2 caused the Ponzi Housing and Foreclosuregate... it demonstrates a perspective that is skewed, short-sighted, and gives cover to those who actually committed crimes.

If by B2 'caused' the crisis you mean... taking steps to shed a light on the mortgage ponzi problem, with the intention of bringing it to it's dismal end ... then yes B2 'caused' the crisis.

If you mean... breaking the long-held silence on the pervasive fraud in the banking system... then yes B2 did that.

If you mean... requiring devious bankers to have actual individuals not straw persons on the other end of the transaction... then yes they did it.

If you mean asking the bankers to actually know where the money they use comes from... then yes they did.

From this perspective, yes... B2 'caused' the crisis. But by the same logic the sheriff 'caused' the criminals to be in county jail.

But is that the real, real story? No, their actions caused the sheriff to get on their case, which in turn caused them to go to jail.

Blaming Basel is another way to deflect responsibility of individual white-collar criminals. I.e. like the 'housing crisis was totally caused by people not paying the mortgages, dude'. But we know that's not the real, real story. Classic backwardsland deflection.

In this case, among other things, B2 attempts to bring the mortgage ponzi scheme to an end, shocking but necessary. Perhaps it causes a bit of a crisis. But it's not the root or the problem, but rather, the rooter-out of the problem.

In the question of chicken and the egg: Don't skip the early steps. That's where you'll find the answers. By the time Basel 2 came along the fraud was already a major focus. In fact, the reason for Basel 2 was that the fraud was not yet detected when Basel 1 was negotiated and was not addressed. Basel 2 specifically put in more focus on rooting out fraud to whatever degree is possible under the circumstances. Of course the pointing out of fraud is not the same as creating it. Hopefully your readers understand that.

Peace.


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Basel 1 put high capital requirements onto the Japanese banks. They are zombie banks. Basel 2 claimed to want higher capital requirements as well, but the originate to distribute scam actually permitted less capital! That is why I don't buy the argument that Basel 2 was just pointing out fraud. I have no confidence in the central banks.

Look at Bernanke, who wants to make gasoline go to 5 bucks a gallon. He is a madman. I do not for one minute believe that central bankers can be trusted, because mainstreet does not comprise their constituency.

But thank you for commenting.


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Glad this helped you make sense out of the credit crisis.


vincent 5 years ago

Although I undoubtfuly agree that Basel II agrremments played a huge role in the current crisis, the word "caused" seems a bit exagerated to me. My own conclusion is that we can't isolate a single cause but several ones,interwoven for the worst.

But some of your points open new perspective of research for me. So thanks for bringing them to public.

The main problem with Basel-like rules, in my opinion, is that until you close all the accounting loopholes, the banks can and will cheat on the value of their asset portfolio, just a few pct points, enough to bring the "equity" level at the desired rate. That's what J. Weil of bloomberg discovered when M&T purchased Wilmington: Wilmington assets were oversestimated by 8% by using an accounting tricks, which seems extensively used by big banks to overestimate assets between 5 and 13%. So what is the accuracy of "official" equity levels in those conditions ?

The only way to regulate banks is :

- transparency. No off balance assets, Off Balance just used for the very limited set of purposes it was created in the first place.

- Dear Bankers, keep as much or as low equity as you want, but if you fail, just fail, taxpayer help must be constitutionaly forbidden, and convert long term bondholders into shareholders, and if the losses are still too huge, wipe out long term bond holders too, and convert short term creditors to shareholders, and if it's still not enough, convert a part of bank accounts into shares, and so on.

So the new shareholders will wipe out failed management and decide between liquidation or restructuration. And people who finance banks will be much more cautious of whom they lend their money, with higher risk premiums.


bgamall profile image

bgamall 5 years ago from Las Vegas, Nevada Author

Interesting post Vincent. As I have said, without the involvement of the US government in repealing Glass-Steagall, this off balance sheet shadow banking would never have been permitted en masse. Oh in a small way some banks, like Citibank did, could have gotten waivers. The Citibank waver was the beginning of the end, though, as the politicians were given financial incentive to destroy the protection for commercial banks and their mortgages. With mass securitization, made easy by the repeal of Glass-Steagall, it became simple to create moral hazard.

My point is that these people knew what they were doing, and knew they would create an easy money channel for house prices to appreciate and for everyone to have a mortgage. I am quite sure they knew it would crash as well, because Enron, using similar mark to model, crashed.


radiantwriting 3 years ago

Very, Very interesting!!!!


bgamall profile image

bgamall 3 years ago from Las Vegas, Nevada Author

Thanks you for the encouragement, Radiant.

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