[Marxism] Translation of Paulson's Speech on the GSEs

[S. Artesian]

Les,

Wrote 3 articles, Virtual Paper 1,2,3 at 
http://thewolfatthedoor.blogspot.com
on this:

The more bare than bones, bareboned sketch.

A.  Mortgage lending increases vs. corporate lending as a result of the 2001 
recession, and the response of corporations to restrict, and maintain 
restrictions on capital spending, investment; instead husbanding cash which 
was distributed, partially, in dividend payments, buybacks, bonuses for 
execs.  Cash was king for industry.

B. For banks, cash was trash.  Cash is not capital unless it finds a route 
for expansion.  That route was, in a reprise and variation of the 
Reagan-Bush era S&L scam, securitization of home mortgages-- a technique 
first developed by Freddie when it was created as a competitor to Fannie.

C. Financial institutions--commercial and investment banks, mortgage 
lenders, securitize their mortgages, making bonds out of them called 
collateralized mortgage obligations, asset back securities, mortgage backed 
securities, structured investment vehicles, and then not only sell the 
obligations, but spin them off as separate entities, thus removing the 
obligations from their balance sheet.

D. In order to complete the circuit, the circuit must be reproduced on an 
expanded level.  Remember nothing is capital if the circuit stops and/or 
remains simple.  Larger masses of mortgages must be issued to back, and 
re-fund existing mortgage securities and meet payment schedules.   Sooner 
rather than later, the circle becomes a pyramid.   When securities are 
created, the issuers obtain a rating for the security, assigning risk. The 
issuers think they "disperse" risk by creating levels of debt, tranches, 
playing off risk against discount to face value, interest rates etc.  Enter 
the subprime mortgage (30% of which are in overdue or are in foreclosure 
today).  Most of the subprimes were issued in  2005, 2006, and first half 
2007; with banks so cash flush, (but with capital spending just beginning to 
pick up) with risk so "dispersed," with interest rates modest, subprime and 
jumbo subprimes become the new primes. Everybody gets a mortgage, no 
questions asked, no money down.  Flexible payment options (minimal payments 
with the difference between minimal and the actual base payment being added 
to the total amount of the mortgage with the rate to be reset in 3 or 5 
years-- based on the new amount) proliferate.  Think of Andrew Fastow meets 
Faulkner's Snopes family and you get an idea of what's going on.

E. Late 2005-- banks start to report problems with mortgage repayments.... 
but nothing spurs overproduction, overexpansion, overdebt like 
overproduction overexpansion and so the process of mortgage securitization 
increases until... until rates of return, and not just in banks, begin to 
decline, then the big payback starts.  In 2007, rates of return for US 
corporations turn the corner and start to decline....  Refunding of debt, 
resecuritization cracks.  Banks turn more and more to the Federal Home Loan 
Banks for funding requirements.  Govt. lifts restrictions of Freddie and 
Fannie funding jumbo debts.  Next stop.... Bartertown.

----- Original Message ----- 
From: "Les Schaffer" <schaffer at optonline.net>
To: <sartesian at earthlink.net>
Sent: Monday, September 08, 2008 9:21 AM
Subject: Re: [Marxism] Translation of Paulson's Speech on the GSEs