Why the Banks Should Be Broken Up

[eridani]

http://readersupportednews.org/opinion2/277-75/36222-focus-why-the-banks-should-be-broken-up

The root problem of the '08 crisis lay in a broad criminal fraud scheme in the mortgage markets. Real-estate agents fanned out into middle- and low-income neighborhoods in huge numbers and coaxed as many people as possible into loans, whether they could afford them or not.

Those loans in turn were bought up by giant financial companies on Wall Street, who chopped them up into a kind of mortgage hamburger. Out of this hamburger, they made securities. These securities were then sold to institutional investors like pension funds, unions, insurance companies and hedge funds.

In the typical scenario, the investors buying these toxic mortgage securities weren't told how risky the merchandise was. Many thought they were investing in AAA-rated real estate, when in fact they were buying up the flimsy home loans of part-time janitors, manicurists, strawberry pickers, people without ID or immigration status, and so on.

There were two major classes of victims in this scheme: homeowners and investors. About five million people went into foreclosure after the crash, and investor losses globally ran into the trillions. It was an unparalleled event in the annals of white-collar crime.

Virtually the entire financial industry had a hand in this. The ratings agencies were complicit because they blessed a lot of these mortgage securities with high ratings when they knew they didn't deserve them. Companies like AIG had a role because they created a kind of pseudo-insurance for these mortgage securities that disguised the risk they posed.

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