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.)