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How Wall Street’s Scam Artists Turned Home Mortgages Into Economic WMDs

Posted by Trey Smith on October 18, 2008

Joshua Holland writing for AlterNet reports:

If the ABCs of the financial meltdown leave your head spinning — if “default swaps” and “collateralized debt obligations” and “high-rated tranches” are all just so much gobbledygook — don’t worry. You’re not alone.

The alphabet soup of exotic investments that represent the immediate cause of the banking mess is so complex that many of those “innovative” financiers responsible for bringing the global economy to the brink of collapse are now making a fortune in consulting fees explaining just what the hell it is that they created. According to the Financial Times, Robert Reoch, the London banker who may be responsible for creating the first of the now-infamous debt-based securities, is now “swamped by investors who want to extricate themselves from derivatives-linked messes, or simply to understand the products that came out of the past few years of intense financial innovation.” The Washington Post reported that Joe Cassano, the financial products manager “whose complex investments led to (AIG’s) near collapse,” is raking in $1 million per month in consulting fees from the ailing financial giant to help sort out the toxic sludge on (and off) the bank’s books.

But despite the dense jargon, it’s important to get a handle on this stuff. The global economy is at risk of a crash that would cause intense pain among millions of ordinary people, and not because of a few million homeowners overextending themselves, but rather as a result of a small number of savvy wheeler-dealers rigging an unregulated investment market in such a way that they’d always win no matter who else lost.

This is a story that’s easily lost in the mumbo-jumbo of market-speak, and the investment banking community — and its political allies — have been working feverishly to shift the blame for the mess onto the poor and people of color, Fannie Mae and Freddie Mac — the large government-backed lenders — community groups, “Congressional liberals” and even gay people… read the rest.


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