If someone had asserted a week ago at this writing - early AM Monday - that within a week, Eliot Spitzer's career and Bear Stearns would both spectacularly implode, the most likely response would have been derision.
And yet here we are, with Bear being essentially nationalized [1] - the Fed is taking over that firm's assets as collateral for a thirty billion dollar loan guarantee - and Eliot Spitzer officially handing over the reins to his lieutenant governor at noon today.
The Sheriff of Wall Street went down at the same time as Wall Street itself. How ironic. Per the New York Times [2], Merrill Lynch and Lehman Brothers may be next down the rabbit hole.
At the bottom of that hole sits the same culprit in both cases: the Bush administration. Any serious look at the investigation into Eliot Spitzer has to come to the conclusion that the Bush Department of Justice was aiming for a hit. And that's what they got, signed, sealed and delivered courtesy of Alberto Gonzales. Any why Spitzer? Because he was the lone politician to take on the business practices that first came to pass in the Bush era, when Wall Street knew its practices wouldn't be scrutinized too closely, Enron and Sarbanes-Oxley be damned.
Greg Palast [3] takes a closer look:
Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants including loans with teeny “introductory†interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’
Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount†they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.
And now, the same administration that couldn't be bothered to spend a few million dollars to shore up the levees in New Orleans is throwing hundreds of billions - that we don't have - at a banking sector collapsing under the weight of risky speculation that same administration enabled via lax oversight.
If Americans have any sense whatsoever, we will horsewhip republicans out of power for generations. A losing war, failing banks, millions of people robbed of their life savings, a crashing economy, half the value of the dollar gone - that's the republican party for you right there.
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