Larry Kerschner Writes

Bear Stearns

     Right-wing defenders of the so-called free-market system counter criticism of of sub-prime mortgage lenders and banks by pinning the blame on those they see as the real culprits.  The real culprits are those who were talked into borrowing more money than they could afford.  When you fall behind on your mortgage payments when your variable interest loan is adjusted upward you become what they call a predatory borrower taking advantage of the poor bankers. 

     However, if you sink billions into shaky investments based on buying or selling bundled sub-prime loans you are rescued by the Federal Reserve, that is the American taxpayer, because we can't allow capitalism to be seen to fail. Remember that the Federal Reserve is a committee of private bankers who represent the interests of the banking system not the interests of the the American people. 

     There is an interesting back story that isn't usually noted in the media about takeover of investment bank Bear Stearns by JP Morgan Chase.   Bear Stearns was known in the capitalist circles as a bit of an outsider.  When the Federal Reserve convinced most of the large Wall Street firms to bail out a hedge fund that was going under, Bear Stearns was one of few who did not take part. The capitalists have a long memory about their own who don't play the game.

     Both Bear Stearns and Goldman Sachs, another investment bank, specialized in high risk investments.  But Bear Stearns was the only one to go under. Henry Paulson, who is the former Chairman of Goldman Sachs, and now the Secretary of the Treasury, helped JPMC acquire Bear Stearns by having the Federal Reserve agree to cover any JPMC losses up to $30 billion with tax payers money. 

     I haven't heard of any loan guarantees with tax payer backing for working people who are faced with foreclosure of their homes or ballooning mortgage payments or even food costs which are up as a result of this financial debacle.  This sub-prime crisis has pulled a huge amount of wealth away from many middle and lower income people in this country.

      The Institute for Policy Studies estimates the loss of wealth for people of color in the U.S. to be between $164 billion and $213 billion.  Because of the Federal Reserve backing any losses to the U.S. banking system this is essentially a transfer of wealth from the poor directly to the wealthy. I mention people of color because according to Federal data, people of color are more than three times likely to have sub-prime loans. 

     Some of the answers to this situation would include federal investment in financing homes as suggested by Rep. Barney Frank, lowering the cap on mortgage deductions, giving builders tax incentives to build lower cost homes and re-regulation of the mortgage industry.  Of course the ruling class would have to take a small bite out of their greed for these suggestions to occur.