By Catherine Austin Fitts
In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle.
I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.
Recently, we have seen numerous press accounts of bank and hedge fund losses from sub-prime mortgages. Remarkably, these reports imply that the losses are the result of a market downturn or contracting credit cycle. But there has been no mention of the extraordinary profits that were generated or who reaped them. There is no mention of who is poised to make a fortune on the bubble collapse. Even the most sophisticated commentators of our day are describing this financial coup d’etat as the unintentional consequence of “market forces.”
I have written and spoken for many years about the intentional engineering of the U.S. housing bubble and its ramifications for Americans and global investors. “Do not attempt to cure what you do not understand” is a good motto for navigating the gathering storm. As we work to mitigate investment losses in the mortgage market and the harm done to communities through the fraudulent inducement of debt, we are well served to understand what has happened, who is benefiting, and why.