By Chris Chalfant

Brooklyn, NY September 24, 2008

I consider myself a liberal progressive Democrat. For better or for worse, I also have family and friends who are uber-wealthy pro-corporate Republicans. I had a conversation today with one of these people which I found rather disturbing, and I would like to share it with you. He blames the crisis on the foreclosures of homes bought by poor blacks and Hispanics “who just sit around and don’t like to work, spend their time doing crimes and being in jail.” 



 
Bearing the mortgage bail out burden
 
These loans by what he calls the “degenerates of society” would be bought by the government at about 60% in the proposed bailout, then would be unloaded by the federal government in big blocks at about 40% with list prices of over one billion dollars, bought in shares by consortiums of the uber-wealthy - all business pals. The blanket sales would be overseen by Freddie Mack/Fannie Mae.
When I asked who would benefit from the bailout, my friend said, and I quote, “financial whores”, who would then in turn make potentially insurmountable profits down the line from “flipping” the houses after their cronies would do band-aid fix-ups for higher resale. When asked how the people whose houses were foreclosed would be affected, he said that the poor people always lose. “That’s just the way it is.”

When I asked who my friend meant when he said “financial whores”, he mentioned the names of two personal friends, one who is from a major law firm in New York and the other a retired CEO from one of the largest banks in the country. They have been doing real estate deals in a group for decades. Others in the group include other lawyers, real estate agents, mortgage brokers, mortgage bankers, and construction workers, all of whom would make profits at every turn of the deals.

I recall a conversation from this summer with my friend, who is a retired Brooklyn litigation attorney, having practiced both as a prosecutor and defending attorney. He spoke with great facility and familiarity about corruption on all levels that drives the operation and economy of New York. He had mentioned that it was common for such consortiums to push through mortgages for potential home-owners who really could not afford their homes. “Default swapping”, another fancy term for betting, was certainly part of the motivating factor for pursuing these arrangements.

 
 
Treasury Secretary Henry Paulson pushing the bail out plan
 
Default swapping, unknown as a word in the English language until recently, still remains elusive to economists, especially given the “opacity” or secretive nature of the business dealings by the investment banking industry. I find this deplorable given the severity of the consequences for the economy, punishing the most vulnerable in our society, partially as a result of these actions by knowing parties. I was outraged to find out that poor and middle income people were made pawns, giving them hope of a brighter future with home-ownership, only to find out down the road that the same institutions that promised these innocent people with an eye on a brighter future would in turn profit from their distressed circumstances. The CEO’s knew their statistics and probability well-enough to know that if they continued to raise mortgage and credit card interest rates they would win their “bets.

In addition to profits already made from default swaps by the same institutions that are asking to be bailed out, the bailout will also ensure profits by Freddie Mack and Fannie Mae for the transactions to and from the government. The upper-wealthy continue to maximize their profit with regularity in this highly volatile market. Let’s get this straight. The uber-wealthy one percent profit from the buying of stocks, selling of stocks, default swapping, selling to the government for the bailout, buying from the government after the bailout, and then selling to the consumer. In addition they get “points”, that is a percentage of the profit, for finding good deals for their pals. On top of that they get their very comfortable salaries and retirement, regardless of the negative impact on the thousands of employees that they lay-off.

It would not take a rocket-scientist to figure out that these “business associates” can only assume that there was a hefty amount of insider trading going on, thus catapulting the fallout. Hopefully the current FBO investigation will shed some light on this situation.

 
 
Federal Reserve Chairman Ben Bernanke warns of dangers to the economy
 
How unscrupulous can a person, a corporation, an industry, stoop so low as to make a profit on someone else’s struggle? This is the most blatant form of prejudice that I can imagine, given the number of African-Americans that have been affected by this outrageous behavior amongst the mostly white corporate-elite, known as the Republican Party.

Our Republican President, fed by the Republican base, is in the process of brokering the largest investment deal in history with those who created this most devastating crisis for our economy since the Great Depression at the expense of those on Main Street, some of whom now live literally on Main Street benches and sidewalks. Even though they will own the debt of thousands of homes, they will not be able to live in any of them. We must watch this deal like a hawk. This is exactly the kind of urgency created by the Republican-backed Congress and President George W. Bush to sneak-in the decision to strike Iraq. We know what the results were from the emergent passage of the congressional decision.

 
 
Barney Frank taking on financial leaders
 
These “financial whores”, as my friend says, are already positioned to jump on these “deals” as we speak, and have been doing the same with their cronies for decades, and New York, the home of Wall Street, is the core element of the escalating profits of the uber-wealthy at the expense of the American People, and soon-to-be many of the other major players in the global economy. It is understood in New York that the real estate market does not follow national trends. Even though New York will undoubtedly be greatly affected by this economic crisis, investors are frothing at the mouth, waiting to pounce on these deals for their future mega-returns.

One only needs to walk out of any subway stop in New York to see the boom of construction, in anticipation of the predicted increase of one million people, according to Mayor Bloomberg. The only construction projects that have slowed are those funded by the government, although they ripples from the current crisis will indeed effect those under the upper 1%. Bloomberg and the rest of these uber-wealthy investors are banking on the fact that investors from outside of the U.S. will continue to buy property to sustain the economy until the U.S. economy bounces back. We saw a surge of Asian property owners in the 1970s during New York’s near-bankruptcy, and have seen an increasing number of non-American investors in recent times. You can be bet (no pun-intended) that the local real estate moguls are preparing for the eventual upswing. One only needs to walk down 57th Street between 6th and 7th Avenues in Midtown Manhattan to see three towering construction projects expected to transform 57tth Street into another mega-tourist attraction. The privileged upper 1% are like vultures waiting to pounce on their prey for mega-profit. One of the rules of investing real estate is to buy based on maximum profit per square foot. Buy property in recently re-zoned neighborhoods; hire cheap labor to build shoddy housing, and then profit by as much as 700%. New York has seen entire neighborhoods lose their character because of sweeping zoning changes from three-story to 12 story buildings in Brooklyn’s Park Slope, and four-story to 20 story increases in Manhattan’s Chelsea.

 
 
Hillary Clinton speaking out on the foreclosure crisis
 
While the real estate market is at a virtual standstill right now for anyone who needs to borrow, it certainly is a buyer’s market for those who have cash on-hand. Even if prices decrease by 70% the market in New York is still grossly over-inflated. To give an example, the neighborhood I used to live in from 1994-1999 in Brooklyn had three-story brownstones, which were being bought at $150,000 when I moved in. Considering that the purchase price for these same properties was $58,000 in the late 1970’s, I considered this an outrageous price at the time. When I left the neighborhood in 1999 after my rent doubled the prices were about $500,000. Recently, a brownstone on my old block sold for $2.7 million dollars. Others in nearby neighborhoods were listed at 4.5 million dollars.

Before Black Monday insider trading proved to be very profitable for the few at the expense of the American People. We made this illegal and the public benefited. With the decisions that President Bush, with the votes of John McCain and other Republicans, we have slipped back into treacherous times due to deregulation, opacity and default swapping. We cannot let Bush, the Republicans and Wall Street benefit with yet another severe lack of consideration for anyone other than themselves. They must be held accountable with severe financial and judicial punishment. The sense of urgency of this bailout is all too similar to the sense of urgency which led to the decision to invade Iraq. We know the effects of this. Yes, we need to make drastic changes to prevent a total breakdown of the economy, but not on the terms proposed by Paulson. Crisis does bring about change, but the bailout for the benefit of the wealthy-few is not the change we need.