April 17, 2010

RANDOLPH BRANDT: How Wall Street sunk your house

By Randolph Brandt

A couple of years ago – before the nation’s financial collapse in the final days of the Bush administration – I ran into a now-former Racine mayor, who shall remain nameless, but he was coming out of a bar.

I’d met this mayor a couple of times before, so I felt emboldened enough to mention to him that I was a little concerned that the tax assessment on my relatively modest home had just been increased exponentially, on top of a similarly exponential increase the year before.

“Complain to me when your assessment (and hence, its value) goes down,” the then-mayor replied.

Well, that mayor’s not in office anymore, but a letter this week from the city assessor notified me that my tax assessment finally did go down — by a little more than 2 percent — at a time when I read on Racine Post that housing values may actually be down by as much as 25-30 percent in Racine.

Thanks a lot. By that measure, I’m 2 percent ahead, but 30 percent behind.

It’s my bet you are, too.

The new bunch in City Hall probably will make up the difference in tax revenue with a higher tax rate anyway; meanwhile, there are nearly a dozen homes still on the market in my neighborhood, unsold for many months, despite the “price reduced” addendums tacked onto all the real estate signs.

Whether you’re a Tea Partier or not, it’s time to complain about this situation, and demand financial reform.

How did this happen? How did the largest personal investment in my portfolio — my home — suddenly become unmarketable, or at least only marketable at a significantly reduced price that’s considerably less than I’d been counting on to help pay for my retirement?

Rather than ask the new mayor again (which probably wouldn’t help anyway), I ‘d like to ask Goldman Sachs instead.

There are lots of people in line to ask questions of Goldman Sachs, including several congressional investigatory panels and the newly empowered Securities and Exchange Commission, so I don’t really expect any direct answers from Goldman Sachs anytime soon.

Right now, they’re just denying everything, insisting only that they’re not crooks.

So, I’m left to figure out this major nationwide financial collapse myself.

The explanation goes something like this:

Unlike the stock market, much of the bond market is virtually unregulated by the SEC. Therefore, entities such as Goldman Sachs and other “investment” banks are basically free to invent exotic derivatives to bring to market based on extremely questionable investments, such as packaged, worthless subprime mortgages, and to sell them to unsuspecting retirees and other investors, like you and me.

Since there’s currently no meaningful federal regulation prohibiting this type of fraud, they just went ahead and perpetrated it.

They also knew from the get-go that because they control so much of the nation’s wealth, they ultimately would be deemed “too big to fail,” and that no matter what the risks, the federal government would have no choice but to bail them out or face the country’s financial ruin.

It’s just another example of audacity, not of hope, but of hubris – powerful financial manipulators convinced that no matter what their decisions, there would be a private return for them shielded by socialized risk for everyone else.

If they were right, they’d get rich beyond avarice. If they were wrong, no matter – the rest of the people would have to pay them off anyway.

But it gets even worse. Not only did these Wall Street investment houses knowingly sell worthless bonds to millions of people, but at the same time, they placed alternative bets for themselves —called shorts — expecting those supposedly “triple-A” bond investments they sold to everybody else to fail, so they’d stand to reap billions either way, win or lose.

So, they made money on you and me by knowingly selling those worthless bonds on the open market, while at the same time, they were betting against the bonds’ performance on a private, secret market that is, unlike common stocks, unregulated by the federal government.

They simply couldn’t lose in this rigged game, but you and I did. It caused the housing market to collapse and along with it, the rest of the economy as well.

Back in the day when the mob ran the numbers racket, people would bet on a number, like 1-2-3, based on the possible finishers at the track, and the number would pay off or not, depending upon how well somebody happened to pick the winner.

But nobody anywhere in the chain really knew for certain which horses would finish in which order, so at least the game was, more or less, honest.

If the action on any one number sequence got too great for one bookmaker to risk, they’d simply “lay off” a portion of the bet to other bookies, just in case somebody got so lucky on a big score that a single bookie couldn’t handle it all.

Wall Street, in this instance, did just about the same thing. Goldman Sachs “laid off” the betting action to certain preferred accomplices, hedge fund operators who helped design the scheme.

The only difference between the mob and Wall Street in this instance, however, was that while the mob never really knew which horses would actually win at the track, the hedge fund operators already knew which horses in their packaged securities were lame. They knew the bad bonds from the good ones, and they helped Goldman Sachs pick the bad ones to sell to unsuspecting investors.

They already knew that the “favorite to show” would come in dead last, but they sold people tickets to win anyway, while secretly betting against the favorite themselves.

Whereas such “fixes” among numbers runners would have earned you a pair of cement shoes in the Hudson River or a shallow grave in the Pine Barrens of New Jersey, the same standard of dishonesty among the Wall Street mob now earns you millions of dollars a year in preferred bonuses.

That’s fraud, and that’s what the Obama administration wants to punish now and prevent in the future.

Ironically, the mores of the mob were, in comparison, more pristine than those of the current syndicates on Wall Street.

If that’s not a clarion call for financial reform, nothing is.

(Randolph D. Brandt is a retired newspaper editor living in Racine, Wis.)


  1. Let's get the facts more accurate here. Inspite of former Pres Clinton's early denial having a part in the housing bubble burst he did start the ball rolling in a big way. Until Clinton signed the bill in May of 1999 that changed the lending rules banks had much higher standards for home lending. Remember, 20% down and no more than 28% income for house payment and never lend over 90% current value rules? Well in May of 1999 Clinton signed the bill, with Greenspan looking on with a big smile, that threw out all the old rules for home loans. Freddie Mac and Fannie Mae would be ordered to pretty much insure that anyone who wanted to buy a house could borrow what they needed even if all the logic said they couldn't afford the house.

    In the 2004 time frame the Bush administration, who has been widely blamed for this disaster, tried unsuccessfully to get congress to tighten up the rules because they warned this was coming. Barney Frank made sure the rules didn't change.

    The rest of the history doesn't excuse the financial institutions but it makes it clear they were a part of much bigger misbehavior that includes the heights of government. The financial institutions packaged some awful investment in these bad loans. But we are still repeating the same mistakes now by reselling many of these foreclosed homes to a new generation of owners that can't afford the homes. Obama can find a lot of guilt in this but the actions of his administration and congress right now are going to lead to yet another burst down the line.

    Washington needs to fix the whole problem not just the banks and other financial institutions. The Clinton signed bill was called deregulation. In reality is set the regulation that was counter to past bank practice and lead to the disaster we are still suffering.

    So Mr Brandt is partially right but he only aims at one part of the problem. Hopefully he and others will see that the picture and problems are much bigger than some bad guys in the financial industry.

    Before you start accusing me of being in the financial world. I'm not. I am someone who watches history and is pained to see us keep repeating it.

  2. There are plenty of villains to go around but predictably you focus on the capitalists while giving Obama a pass. Actually, in a sense they are not capitalists, as you point out, as they socialized the risk. Of course this would have been all but impossible without the implicit guarantee from the government. Anyway, being a Racine resident, I think the larger problem for you is the spending/taxation by the city, hence the need to keep assessed values well above actual value. I wonder if you think that is as fraudulent as the bogus valuations pulled off by Wall Street. I can't help but be a tad amused by your situation Randy, insofar as you spent your professional career as an advocate for big spending liberalism. You are getting what you asked for. On a positive note, its not too late to change your thinking Randy. Put on a disguise, don't tell your liberal pals, and go rub elbows with some gun toting racist Tea Partiers. You might just learn something.

  3. 4:51 Trying to blame Clinton for what happened is like trying to blame George W. for WWII. During the Clintons years we experienced the best economic period ever. We purchased three homes during this period and our credit was always scrutinzed and loans granted on our ability to pay it back. It was not until George W. Bush came into office that greedy financiers used unethetical methods to gives loans to whomever by misrepresenting income and assetts. You can try to spin this however you want but the Clinton years were the best economical period in the past fifty years.

  4. Denis: What he said and this: Obama is given a pass on this BECAUSE THE ECONOMY COLLAPSED BEFORE HE CAME INTO OFFICE! Perhaps you'd like to blame the typhoid epidemic of 1923 on him as well?

  5. You sound like a bunch of 4 year olds...he did it...no, he did it...and on and on. It's the age of assigning blame, not finding educated (non-political) solutions.

  6. 5:18,

    The Clinton piece isn't an opinion it is fact. The video footage of the signing of the new rules was proudly recorded and broadcast. That's why I know Greenspan was smiling next to him proudly. Both these guys tried to say they didn't have a role until the video of the bill signing was released. They have been very quiet since then.

    Clinton did some good things and I will gladly give him is due but bill that change the rules on home mortgage lending was the beginning of the problem so it wasn't one of his good moves. It is history not opinion.

    As to the blame comments. If you don't trace these things to their historical beginning you can't fix it in the future. My earlier comment that we are making the same mistakes all over is noting that we have not learned from history so we will be doomed to repeat it.

    Blame no, history yes, learning from it apparently no.

  7. Anon, 8:48,

    Your emphasis on history is commendable. If we don't remember it, we'll repeat it. They deregulated the S&Ls and we had the S&L crisis. They deregulated the banks and we had the banking crisis. You can't let these kids stick their hands in the cookie jar without some adult supervision. I hope at least a few Republicans overcome their aversion to Obama to make some serious financial reform regulations possible.

  8. well said Randolph. Randolph for Mayor, 2011 !

  9. Perhaps it was the copper gutters you put on your house that increased your assesment! All I could afford was aluminum.

  10. You live like a king, Randy, and all you do is whine. What a spoiled brat.

  11. It's ironic that someone who made his fortune selling lies is upset that someone else makes their money by selling lies. Lies hurt, whether they're backing your investments or printed on the front page of the Journal Times.

    Party on, outlander!

  12. Liberals were screaming about deregulation for years at Republicans as well as Clinton while teabaggers were still snoozing to dreams of Ayn Rand. Obama comes in office and suddenly they wake up, shocked! shocked at the overspending and of the government.

    They have little contempt for corporate greed, lies and manipulation however because - well that's just a free market you know.

    When these "patriots" start putting pictures of Hank Paulson with a Hitler mustache, I'll take their incoherent movement a little more seriously.

  13. concrete katie4/18/2010 12:05 PM

    "DEMOCRACY most often affiliates with the open air, is sunny and hardy and sane only with NATURE."
    --Walt Whitman-- in 1882 or 1883

    What hath been will be again because it has always been here.

  14. Goldman Sachs? The same Goldman Sachs whose employees were the second largest contributor to Obama's campaign of any company? Followed of course By CitiGroup, JP Morgan, Morgan Stanley...

  15. Talk about betting the wrong horse!

  16. I blame Jim Doyle, too.

  17. Anon, 12:13:


  18. It is a good thing that we have Racine Post to provide us with this unique, locally relevant commentary that we could not find anywhere else. Oh wait...this op ed really is not about Racine and I can find similar opinions scattered across the internet....just another out of place rambling rant from Randolph.

  19. 12:40- The lead-in to Brandt's piece discusses increases to his local property taxes. Your state government has a whole lot more impact on your local property taxes than Wall Street does. And Doyle has been in charge of that, so I blame him.

  20. 9:49 - That is a stretch. Doyle has to react to the conditions of lower revenue due to reduced house assessment value. This was not created at the state level. That being said, this has to be corrected. The rich will always try to manipulate the middle class for personal profit. Trickle down theory at its worst.

  21. Randy do you even read wht you post?

    My relatively modest home - let's have everyone drive past your house in the 3400 block of N. Main St for themselves to decide.

    Your assessment went down by only 2% - then you say, your house suddenly becomes unmarketable or at least at a significantly reduced price.

    You really should proof your writing - you are an idiot.

  22. An uncomfortable truth right now in the city is people are having a hard time selling their homes. I personally know three people who have taken their Racine homes - all nice homes - off the market and are trying to rent them out because they can't find a buyer.

    Plus, there's dozens and dozens of abandoned homes throughout the city that are rotting away under bank ownership. One home I know of isn't even owned by a bank. The owner abandoned the premises and no one else seems to want it. The house just sits there. You couldn't buy it at market rate if you tried.


  23. Dustin - Sure there are issues with housing in Racine, but let's not let people of the hook. Let's not take the blame someone else position. In many of these cases the people tshould blame themselves for getting in over their head - don't blame the banks, blame the people who bought them and could not afford them.

  24. Not putting part of the blame on Clinton is absurd.

    Sometimes it takes years and years for bad policies to have effect.

    It is simply a fact that Bush tried to put the breaks on this and was fought, particularly by Chris Dodd and Barney Frank who refused to slow down Freddy and Fannie.

    People bought too much house, were encouraged to do so and when too many of them failed the banks took losses.

    This entire process took more than a decade.

    That's just a fact.

    There is plenty of blame to spread. Partisan bickering without honesty will just lead to making the same mistakes again.

  25. Randy:
    You are a self absorbed blow hard. The world owes you nothing! In fact you owe us for allowing you to suckle on our teat for as long as you have and will!
    Whiners are easy to find, you are a great example!!
    Get another Hobby other than bore us with your uninformed BS.
    The Banks did what your hero Clinton told them to!
    Simple math!!!

  26. 2:10 Amen, but now we'll get multiple more emails from this socialisitc knucklehead.

  27. Anon, 2:25,

    As you wish:

    "We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home."

    That was President George W. Bush, on Oct. 15, 2002, announcing full implementation of the Section 8 Homeownership Program providing government vouchers in lieu of down payments for balloon mortgages for first-time homebuyers.

    Here's what John Snow, Bush's first treasury secretary, had to say about it after the crash:

    "The Bush administration took a lot of pride that home ownership had reached historic highs. But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."

    So, everybody gets to own a home, courtesy of the federal government, whether they can afford it or not? No offense, but George Bush sounds like the socialistic knucklehead there.

  28. Randy - I'd say in addition to you, those that bought homes they could not afford are knuckleheads. But being the socialist you are, you'll play the blame game - it's always someone elses fault.

  29. Anon, 4:16,

    I really don't care who's at fault, but I see a pattern of deregulating banks (or S&Ls, etc.), then a wholesale theft from the American public.

    That's why we need the financial reform bill that will prohibit so-called investment banks and other financial institutions from keeping their questionable transactions off the public exchange boards and undercover, until it's too late.

    We also need FDIC-type authority for Treasury to step in and exercise some control when banks "too large to fail" start failing. It works for FDIC, and it worked for the Resolution Trust that got us out of the Savings and Loan Mess 20 years ago. Resolution Trust even wound up showing a profit.

    But we can't just let these Wall Street pirates take advantage of lax regulation to get away with fraud, like they did with their secret double-blind bets on credit default swaps.

    It nearly killed the country, for God's sake!

  30. Hey Randy Boy - why don't you respond to 11:37 AM?

  31. I don't know. Some vague threat maybe.

  32. the question was, don't you even proof your postings - see the questions/comments.

  33. Yes, I proof my material. As for my home, if that's what you mean, it's probably worth a somewhat more than the one on one side of it and considerably less than the one of the other side of it. So, what's your point?

  34. Uh, homeowners have taken the brunt of the collapse. Remember, they're the one who lost their homes.

    Banks made out like bandits (actually, that's slanderous to bandits). They made record profits while they inflated the bubble, then got a fat government bailout when they failed.

    The absurdity of the reform debate is Republicans are arguing for a status quo that is more "socialist" than the actual reforms. People say, "Well the government should let the banks fail." We tried that in the late 1920s and that didn't work out so well.

    We need strong, well-run banks to manage the economy. The only way we'll get the "well run" part is with tighter regulation of the industry. Otherwise, as Michael Lewis writes in his latest book, everyone is focused solely on the short term at the expense of the long term. They get rich, and when things go bad, they sail away on their yachts. Nice gig, if you can get it.

    Meanwhile, the rest of us are left with the consequences.

  35. Randolph – a point and then a question for you: the government has decided that it is in the "common good" for taxpayers like me to pay for the health care of taxpayers like you. Your healthcare will be expensive, partly (largely?) because of poor health decisions that you have made throughout your life, including lack of exercise and smoking. Will you now commit to making improved health decisions, including smoking cessation and exercise, in the interest of saving a little money for the "common good", or do your personal rights to do whatever you want with your body trump the "common good's" right to have as much money for people's care as possible?

  36. Randy - My point is that your original post had contradictions in it, but I know you will not admit it.

  37. and no, Racine Post, the answer is not more regulation. Much of the problem came from fraud - the mixing of toxic assets with "good" assets. "I'm going to mix just a little arsenic with this gallon of milk I'm selling you and my friend is going to rate it AAA - you'll never know about it, I won't be drinking it, and I'll walk away with the money. Allan Greenspan actually said in an interview that "fraud was not a problem and would be corrected by the market". Fraud is the ONLY thing the market CANNOT correct!

    "Forward looking statements" by SEC regulated companies have always been suspect and now they are complete bullshit. This is bad enough, but when you have fraud "inside" the industry, these people need to go to jail. Extra regulation, ridiculous, putting people in jail for life, incentive to not do it again. This will never happen because this type of crime is never dealt with seriously unless it rises to the level of Madoff. Try treating those who perpetrate white collar fraud like murders and rapists, or worse yet, racists, for a while and see what happens!

  38. Anon, 8:08,

    You may have me mixed up with somebody else, but, still, don't blame disabled people for their disabilities - it's very rude.

  39. Anon, 8:08,

    You may have me mixed up with somebody else, but, still, don't blame disabled people for their disabilities - it's very rude.

  40. Randolph - I know that you aren't well and I am sorry, but this has nothing to do with "disabilities" so don't play the pity card. Will you or will you not stop smoking in order to save on the health care that taxpayers will be funding?

  41. Vanderbilt University economist Kip Viscusi studied the net costs of smoking-related spending and savings and found that for every pack of cigarettes smoked, the country reaps a net cost savings of 32 cents.

  42. And what does this have to do with financial reform on Wall Street, anyway?

    Or is it just an excuse for a personal attack on somebody you just don't happen to like?

  43. 1. You post whatever you want in whatever thread you want
    2. Lame excuse on the smoking - I take that as a "no" on the smoking cessation (I gather that you entertain that smoking is actually good for the "common good")
    3. I do not dislike you, I don't know you. You accuse others of being greedy, whether it is Goldman or the Tea Party people not wanting to pay for your health care, but you do not consider those personal attacks (I don't either). This is not a personal attack either, but I know that the liberal playbook does teach that if you play victim everyone has to keep away.

  44. Anon,

    Actually, i believe in personal freedom and equal opportunity. It's the American way. Try it, you'll like it. Or at least get used to it.

  45. This comment has been removed by a blog administrator.

  46. It's not just wall street that needs reform, it's also our government that needs reform. We live in a country bought and paid for by corporations.Whether your right or left, we are all suckers.

  47. You can't reform wall street until you uncover the root cause oif the problems. People just didn't stop paying for their homes for the fun of it. What caused people not to pay, saying they just walked away doesn't cut it. Something had to happen first.

  48. This comment has been removed by a blog administrator.

  49. . . . and one more thing Randolph - as painful as they might be, the questions I have asked you are no different than any I would expect to be asked under the same circumstances in our new world order!

  50. Randy - you believe in personal freedom - that is BS. Socilists like you want government to take away our freedoms - just as they did with the bailouts - and health care. The freedom of the people was no on those to points but you Democrats took away our freedoms and jamed themn up our a__. Don't ever say you believe in freedom that is an out an out LIE!

  51. Sorry about Randolph's quote in my post - you probably should have deleted both of those posts.

    I suspect that Randolph will not come back to this thread so I will summarize. Randolph will choose not to make personal lifestyle changes that will potentially cause less of the taxpayers' healthcare dollar to be spent on him, alowing more money to remain in the system for others to use. Please keep this in mind next time you are reading one of Randolph's articles, all of which are built around the theme that a selfish, greedy group of people is taking advantage of another group of people (the latter group always including Randolph).

  52. Randolph Brandt must have hit a nerve - lots of blog responders. Some with real information & understanding!

    I have no problem with the size of banks, so long as they actually bear the risk for their actions, and can accurately explain that risk to investors. All across the investment world (including London & Singapore), people thought they could quantize risk - "manage risk" the phrase is. They _assumed_ the house of cards would not fall, or failed to understand the level of risk they accepted.

    Back to the drawing board, people.

    As for the local tax rate dropping, or not. We should all know enough to watch the total _amount_ of the tax, and that has not moved nearly as much as the value of our houses, up or down.

  53. Anon, 4/23, 12:05,

    Ooooo ... and informed poster, for a change.

    Actually, though, the risk had little to do with any real investment. Defenders of Wall Street suggest that the free market allocates capital in a rational manner that benefits the economy..

    Only problem is, that's not what happened here. There was no actual investment in bricks and mortar, new machinery, business on Main Street.

    These really were phantom bets, based only on the supposed performance of actual investments; no real difference between these bets and bets laid down on a casino floor or with a local bookie.

    It went this way when short-term traders took over the banks from actual bankers, whose business is directing capital toward worthwhile investments. Little wonder the system collapsed under the direction of the the new management, now merely pit bosses, rather than actual bankers.

    The financial reform bill will return investment banking to its true compass - and punish those who hijack it merely for daily gains on financial-based lotteries.

    Some Republicans recognize this, along with most Democrats. This should not be an issue of whether to defeat Obama or not.

    It's really a non-partisan judgment over whether we want Wall Street to use its power to direct the nation's money toward investment and improvement, or merely to win or lose daily bets on the casino floor.

  54. . . . or to gamble away health care dollars on those selfish individuals who refuse to take better care of themselves. Look at that parade - everyone's out of step but our Jim!

    You found my questions distasteful - rude. I assure you that I find them distasteful and rude as well! However, now that you and your friends have dragged America down this road, you ask about our investment in Wall Street and we will ask about our investment in . . . you.

  55. since this is a site local to racine i thought i'd add something on topic and closer to home. as a divorced mom, i bought my house 7 years ago for my kids, with the intention to sell it in 5 years when they were grown (and the child support that paid the house payment ended).

    my plan was to buy sequential cheap rehabs to live in and work on - it was a conservative and responsible plan since i got my house at a good price ($119k), and bought and sold several houses for rental, rehab, and residential purposes over the previous 5 years.

    the real estate market's bottom fell out right before my baby moved out. so here i'm stuck, in a house i can no longer afford to keep and can't sell. at least 5 houses ~on my block alone~ that were valued at $100-$140 when i bought mine have sold in the past 2 years for $30-$55k in foreclosure. given that, i would be lucky to sell my gracious home for half of what i owe on it.

    so for now, until i have to cry 'uncle', i get to play a game of chicken with the bank. sent them $$$ stats for the foreclosures on my block, and tried to reason with them that it made a helluva lot more sense to refi me at 70% of my loan than to pay for a year or two vacant, decay, neglect, for a final sale of max $50k. no dice, of course.

    if it's not about logic, it's not about good business, it's not even about money, then what is this all about???