There are some of life’s lessons that we all learn at a very early age. I can still vividly recall an important lesson I learned when I was only five years old. I had just started the first grade (my particular school allowed five-year-olds to enter the first grade at that time – it was probably a bad decision). My mother had bought me a pack of marbles and I was anxious to play marbles in the school play-yard during recess. I suppose a lot of younger people don’t even know what I am talking about here. Anyway, this bag of marbles wasn’t just your ordinary cats eyes; it also had two gargantuan marbles – maybe an inch or more in diameter. They were giant cats eyes. They were my prized possession. During recess I found a group of third graders playing marbles and I asked if I could play too. They took one look at my pack of marbles and said, “SURE!” Well, needless to say it wasn’t long before I had lost everything.
I then asked the boy who had won all my marbles to give them back. He said he wouldn’t because they were playing for keeps. This was a new concept for me because when I had played with my friends we always played for “fun”. You always returned what you won so you could play against each other again tomorrow. Well, it wasn’t long before I was in tears. What I really wanted back was the giant cats eyes; I didn’t care much if the boy kept the small ones. After much pleading the bigger boy said he would give me back the small cats eyes, but not the gigantic ones. And that’s how it ended. I never did get my prized marbles back, and I learned the meaning of “playing for keeps”.
I read in the news today that the investment bank of Lehman Brothers is on the ropes. It seems they made a lot of bad investment decisions, like buying toxic mortgages. Of course they knew what they were doing. Those toxic mortgages carried truly outrageous interest rates and whoever owned them could potentially make gargantuan profits. And, of course, that was Lehman’s plan. They were going to stick it to the poor, hapless homeowner who had made the mistake of signing up for one of these instruments of financial torture and bleed them till they were dry of every cent they owned. And in that way Lehman and their investors would all acquire gigantic fortunes. And if the homeowners reneged on the mortgage the bank would seize their house and sell it and still make a gargantuan profit because house prices were skyrocketing and Lehman plays for keeps, just like all the rich folks and their Wall Street investment banks.
It turns out though that the Brothers Lehman made a slight miscalculation. Not only could the people who received the mortgages not begin to make the outrageous interest payments, but the housing market was tanking and trying to sell a house in this market was like trying to sell ice to the Eskimos. So, the next thing you know, the third-graders at Lehman are watching their bank go belly up, and they desperately start looking for a sucker, I mean buyer, who will buy their whole banking business, including all those toxic mortgages. Surprisingly, it’s hard to find anyone who is in the market for toxic mortgages these days.
In desperation, the Brothers Lehman turn to their buddy, Mr. Bernanke, at the Federal Reserve because he is loaded with money. They want the Fed to help them make a deal by guaranteeing to any buyer that the Fed will cover any losses from the toxic mortgages if the potential buyer will just buy the whole Lehman business. Right now, the word is that Bank of America is interested and so is Barclays, but having the Fed make guarantees to a foreign bank is a little dicey for Chairman Bernanke, so the deal will probably be done with BoA. And once again, just like in the case of Bear Stearns, Fannie Mae, and Freddie Mac, the American taxpayer (that would be you and me) is being called upon to ultimately give billions of dollars to the banks so they won’t lose anything on their toxic mortgages.
I don’t know about you, but I’m getting a little tired of this. Those bankers are all big boys; they knew what they were getting into – just like the third graders at my school. And if there is one thing for sure – those third graders in the banks play for keeps. Just miss a couple of mortgage payments and your house will be foreclosed and you’ll be out on the street with nothing before you can say “usury”. The banks always play for keeps. So why should this be different? Didn’t they know they were playing for keeps? Did the poor third graders at Lehman lose their big shiny marble? So what? Let them fail, the banks were playing for keeps and they knew it. Here’s my plan: send in the vultures to pick the bones clean.
Then, if our good and kindly Fed really wants to help save the country they can step in with our tax dollars and set up a brand new National Home Loan bank- except this bank will have rules barring them from usury. There will be maximum interest rates tied to the rate of inflation, for all loans. There will be strict regulations preventing them from giving loans to people who can’t possibly afford to repay them, and they will be prohibited from assuming that house prices will go up any faster than the inflation rate when they qualify people for home loans. This would be a non-profit bank created to benefit the American taxpayer so that never again will American citizens loose their homes to scheming, profiteering bankers because of speculation and usurious interest rates. Pretty good idea, right?
See, third-graders, we’re playing for keeps now.
