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Please stay on topic (mortgage meltdown and related financial crisis as discussed in the film American Casino, deregulation, ruin of neighborhoods, etc)

Pleas eforgive my hrrble tpyng. I am getting better, I swear.

That being said: Please welcome Leslie and Andrew Cockburn and their insightful film, American Casino

Hi Leslie and Andrew, welcome, thanks for joining us! I have a heap of questions, but first off could you quickly summarize the mortgage scams that lead to out nationwide financial meltdown?

Hi Lisa,
There were so many. Basically though the mortgage companies pushed people into taking out high interest subprime loans when they might have qualified for prime loans; they purposefully inflated customers incomes; meanwhile the ratings companies assigned AAA ratings to mortgage securities that were basically garbage

Andrew, Lisa, thank you for stopping by the Lake and for a great documentary. It was the best I’ve seen on the financial crisis.

Leslie- my mistake

thanks

Thanks so much. It helped that we were filming from early 2008

Why did mortgage companies push prime-qualified borrowers into sub-primes? Because the companies could benefit? Seems way riskier than just giving them a decent mortgage…

Hi Cockburns

At your website, in the synopsis you talk about “A senior Wall Street ratings agency executive describes being ordered to ‘guess’ the worth of billion dollar securities.”

Tell us more about him.
Who was he? And is it true he quit the industry because of this? And did he work for Standard and Poor’s? I personally always took ratings from Wall Street with a big grain of salt, but they really are supposed to be based on fact.

Which leads me into my next question, how did you find subjects to interview so you could tell this horror story?

There was no risk because as our banker says in the film, they had “no skin in the game”. The game was high yield and pass it on…like hot potato from the lender to the bank to the investor. The higher the yield the higher the fees.

Frank Raiter was indeed the head of Residential Mortgage Backed Securities ratings at Standard and Poor’s. He is a former Marine and a very upright guy. He quit because he though it was entirely unethical for the ratings companies to give ratings to securities without any of the relevant background material on which to abuse the analysis

Welcome Leslie and Andrew, and thank you Lisa!
We need Spitzer back, it would seem.

on finding subjects…we felt that to understand what was going on, you had to hear from people all the way up the chain from the borrower in inner city Baltimore through the lender to the banker, the ratings agency person and
eventually to the person making money out of his or her investment. Finding all of these people took time. It took nine months to find the banker who would talk in shadow.

and whoever got stuck with it well, too bad? Yikes, pretty wretched, yet if the borrowed defaulted–oh wait WHEN the borrower defaulted–the last buyer of the mortgage gets the property, but at an inflated price…

Yes indeed. Certainly we need more teeth at the regulatory end. Indeed Spitzer published an op ed in the Washington Post that appeared on the day after he came down to DC on his infamous visit that called for more investigation of mortgage companies.

when the borrower defaulted, the mortgage had been “securitized” and probably leveraged. fees had been paid out. the banks, to protect themselves, hedged. They were betting that people would default at the same time they were selling these mortgage securities as “good investments”. Five Wall St banks set up an index- the ABX -to bet that people would default. As financial journalist Mark Pittman says in the film, “it enabled people to bet more”.

What is the correction for this–I know there are no longer no-doc loans being put out and it s much harder ot get a loans/re-fi (oh don’t I know). On the other hand house prices have become more reasonable/logical. It was embarrassing when my property was ”worth” over $900K. Like uh..no PLEASE don’t list it as worth that that much because it’s not..unless people are desperate and i couldn’t take advantage of someone like that…

It is appalling that some investors were gloating that they made hundreds of millions from this crisis.

For a reall scary article:
http://money.cnn.com/2009/05/1…..2009051216

“The homeownership rate for native-born Latinos peaked in 2005 and has fallen 2.6 percentage points since then to 53.6%. African American homeownership increased to 49.4% in 2004 from 41.9% in 1995 and has now fallen back to 47.5%, a 1.9 percentage point drop. Asian homeownership, which jumped faster than any other group during the boom to 60.8% in 2006 from 49.1% in 1995, fell to 59.1% in 2008, a fall of 1.7 percentage points. Meanwhile, white native-born homeownership grew to 76.1% in 2004 from 70.5% in 1995. In 2008, 74.9% of whites owned their homes, a 1.2 percentage point loss from the peak.”

Presumably, American homeownership – especially minority homeownership – will continue to collapse in ‘09 with the continuing rate of foreclosures.

Accross the board fail.

Mission accomplished.

Welcome to the Lake. Did you find any remorse at among the Bear Stearns or other brokerage firms?

Really, it’s a bad idea to try and push up house prices again. The basic problem was and largely still is that houses are too expensive. By offering loans with artificially low “teaser rates” the mortgage companies made houses seemingly affordable because monthly payments ere low to begin with, but then people were and are stuck with huge loans on houses that are now worth much less. We should push for principal reduction — letting judges cut the size of the loans. — the Senate just balked at this by the way

Maybe I am totally naive, but why would corporations want people to fail? The more success, the more money people have, the more that can BUY stuff and spur the economy..

we have an investor in American Casino who bet a billion that people would default and made 500 million. He made that bet because he realized that in 2006 only 12% of the people in California could afford the average priced home. If no one could afford the homes, the prices were certainly no going to go up. he bet. “I was betting against Wall St.” he told us.

we didn’t find remorse. Although I have to say that when Wall Street people came to the Tribeca festival screenings -and a lot of them came- they were very thoughtful in the Q and As afterwards. I think the film forced them to think about the consequences of what they’ve done.

Too true. In our film we show Bush in 2002 piously promising to close the “ownership gap” between whites and minorities. Meybe he believed it, but the consequence, as we show, has been to devastate minority communities with debt and homelessness.

it depends which corporations you mean. in the financial sector, securitizing subprime was the most profitable game.

It took nine months to find the banker who would talk in shadow.

And he only spoke in shadow, wow. Just wow.

My view is that they don’t want people to fail. It’s that they fail. These corporations are no more better or more intelligently run, with no more compassion, than your average Bush-Cheney-run presidential administration. They were run for years by greedy, corrupt people who only really knew how to do one thing – lobby an equally corrupt government for lax-to-nonexistant regulation and for cheap money which they could pump into increasingly bad projects, creating vast financial bubbles, that, in turn, would inevitably burst. And did burst. And now we choose to deal with their abject failure by bailing them out with billions in taxpayer money without the slightest attempt to reform the very behaviors that led to their failure in the first place. In which case, we fail.

shrubco was less a casino economy than an institutionally corrupt one – a gangster state run by an mutually-self-reinforcing oligarchy kleptocracy of incompetent and venal executives and venal and incompetent politicans. Unfotunately, much of this perfect union of corruption still exists and remains in power. We thought we were a perfect market economy – an advanced model of late capitalism, where the invisible hand of the market would create prosperity and opportunity for all. In reality, we were about as far from a market economy and a truly capitalist society as one can imagine. We proved to be a crony state with no more maturity or commitment to free markets than any other third world crony state.

Wall Street has a lot of ways of keeping people quiet. Many people are paid on “deferred compensation” meaning that they get a big chunk of their (hefty) pay a year or so later. Also there’s a cult of “omerta” at these banks or at least some of them. Most importantly, Wall Street has its own legal system — employees usually have to agree to “mandatory arbitration” when in dispute with employers, and the employers get to pick the arbitrators. So, bottom line, if you talk, you’re screwed.

Profitable for a few, harmful to so many. Heartbreaking to see people who just wanted to own a family home (as opposed to house flippers out to make a profit) get screwed.

How did you find the folks in Baltimore, and how are they doing now?

Denzel, the high school teacher, we found when we went to a foreclosure auction on the courthouse steps — they were auctioning a house every three minutes or so. We heard his house being auctioned — it was just an address — we went round there and found Denzel. He’s still hanging on. Patricia, the therapist, we met at a foreclosure workshop where she ws trying to find a way to save her home. She’renting now. The Rev. Almalene we met through a chance connection. She is still homeless. After seeing the film she said “thank you for giving us a voice.”

truly heartbreaking. we have been told that “everyone” is to blame for the crisis. We found this not to be the case. Often borrowers -trusting their brokers and bankers as though they were doctors or lawyers -believed that they could afford the mortgages they were being “enticed” to take…a word used by Cara Stretch of St Ambrose in Baltimore, a great organization trying to help people avoid foreclosure. People were told they could refinance. As one broker says in the film, the banks were making “a killing” out of this. Also, the documents were “as thick as a phone book”. Borrowers had no time to read the documents and if they did, one Baltimore lawyer explains that even he doesn’t understand the jargon in some of those documents. Also, people were misled on how much it would cost. Escrow was left out in some deals.

when I left the industry, the confy letter (letter governing what I agreed not to say, ever, basically) I signed was over 20 pages along – part of an agreement several hundred pages long, which, frankly, I never read.

John Paulson?

Why did you leave and what do you think about all this?

No, Jeff Greene. Unlike Paulson, who has a hedge fund, Greene was betting his own money, not investors’.

I never blamed the borrowers for this. It’s the greed of the people IN the system. They took advantage of regular people.

It always bugged me that the likes of Rush, his minions, and others of his ilk to whine on as if there were a hoard of lessers that delightedly took advantage of “the system” to get themselves a home they couldn’t afford. Ludicrous!

It was those profiting within the industry that were happy to take the money of the regular folk. They’d rip off their own friends for some extra cash money.

What are the consequences fo rthose brokers who deceived lenders?

Thanks Andrew

Lisa said

Whole neighborhoods are destroyed by foreclosed homes; the abandoned row houses in Baltimore become squats, while Southern California tract houses …

Literally destroyed

http://www.youtube.com/watch?v=ZsgOaCZ2Lag

“Unfotunately, much of this perfect union of corruption still exists and remains in power.” You are right. In fact in Florida, which has been totally and utterly devastated by subprime, etc, there is a push by the Republican governor to rip up more of what few regulations they do have. Incredible.

over 350 of the major lenders have gone broke. the banks pulled the plug.

Crist is doing this? With the legislature’s approval?

In Victorville, out in the Mojave desert, subprime subdivisions are being torn down because the bank doesn;t want to maintain the (foreclosed) properties whiile across town there are new subdivisions being built thanks to subsidies to the builders. Really hard to make this up.

Not yet, but he’s trying.

Why does Charlie want to screw over his Floridians so much? Is this a plan to consolidate power and money in the hands of a few, which seems to go against American ideals…

It’s the American way.

Hi Lisa, Andrew, Leslie, etal. I got one of those subprime loans, I think. I had rented a home for the first time in my adult life after a divorce. Just some background, I am a licensed real estate agent, but my background was not in sales but in research. When my landlords decided it was time to sell their asset, I decided it was time to try to buy a home again if I was ever to own instead of renting. Besides, I had five pets and it’s hard to find a place to rent with that many pets, and if you find one, you may have to pay a premium for it. I contacted several mortgage brokers to explore whether it was even possible. Two said they couldn’t help me, but one said he could do a “no doc” stated income loan for me. I can drive a hard bargain when I want to, so I got a decent rate at 7.5%, found a reasonably priced house in an acceptable neighborhood that I was familiar with because both my niece and my nephew once lived close by. The loan was an ARM (something I didn’t like, but it was the best I could do) with a 3 year prepayment penalty, first change due in 5 years. I don’t think I knew the rate of change until closing (Prime plus 9!!), but I took the loan anyway. Just by luck more than anything, after the 3 years during which I would have had like a 10% prepayment penalty expired, I went shopping for a refi.

Luckily, after much shopping, and back and forth negotiation with my then current lender, Countrywide, they accepted the terms that I told them were my bottom line. I said that I wanted my payments to go down, not up, and that I would not settle for anything less than a fixed rate loan, and they said I could buy down my rate to 6.5% for a fixed rate loan. We did the deal, and that’s how it stands now. My initial payment was $830/mo, but due the advantageous refi and to a series of lucky observations I made that brought down my escrow amounts, my current mtg. payment is $675, and it looks like I may be eligible for the government’s Making Home Affordable program, which will further bring down my mortgage payment. The only thing I don’t know is, how much the mortgage company will charge for fees on the modified loan.

I had been talking about the housing bubble for several years (did I mention my background is in real estate research?!!) before I did my transaction. This could all have been a horrendous mistake and I could have been another one of the homeless due to foreclosure but for fortuitous timing and extremely good luck. Too bad others were not so lucky. I actually made out like a thief; I bought my house for $93,000 in 2003. It appraised at $170K when I refied it. I don’t think it’s lost all of the value it gained yet, and I don’t think it will, but again, I lucked out. The bubble caused all the values in the area to go down, even for those that bought with excellent credit and the best rates during certain periods. This whole thing is a crying shame!

What is the status of the Civil Rights Lawsuits being brought against the financial institutions. I think this is an interesting approach to the problem. What states have lawsuits pending?

Clearly being a real estate professional made a big difference. Unfortunately, a lot of people in Arizona, in particular, are not so fortunate.

what specifically were you referring to here?

You should open a counselling service to help people who are stuck with that criminal prime plus 9 loan

I left Wall Street as a newly appointed MD at a now-defunct (merged into a big bank) bulge bracket i-bank shortly after 9/11 – meaning that I didn’t stay around long enough to get rich or anything like that, even thought I had been in the industry for just under a decade at that point. I simply lost interest in my career and the direction it was going in. I’m not a mortgage or ABS expert, so, apart from understanding the rudiments of the economics, I don’t really have a particularly intelligent view on the crisis. I did, however, work in sponsor finance (euphemism for highly leveraged finance and LBOs).. I would guess the mentality is much the same – people chased deals instead of value, because bonuses were predicated on doing deals, not in creating value. Once you closed and got the stuff off your own firm’s books, nobody cared whether your deal tanked because your multiples were too high or your capital structure was grossly inappropriate given underlying cashflows and realistic growth potential. Money was cheap and regulation was lax, which meant that it had all deteriorated into one big feeding frenzy.

Oh Lisa’s #46

Well, I was being a little facetious. But “a plan to consolidate power and money in the hands of a few” does sound like it covers too much of the country’s history.

Judge Benson Legg in Baltimore has dismissed the Well Fargo motion to dismiss the Baltimore case..thus they go on to discovery. The NAACP has also filed suit against banks. New York is also considering filing suit.

You got lucky and were smart. My ex and I went for a fixed rate because it seemed a LOT wiser than an ARM–many people spend up to what the make and don’t think to save for that “whoops ” when the ARM breaks, so to speak. Luckily my house (yes it’s mine now!) went up in value and though on paper it was at one point worth stupid money, it’s now at a reasonable uptick and I’ve gotten it below a jumbo… But then again we were lucky.

I feel so badly for folks who thought they were getting the fixed payments of say $500, but clsoings, points, homeowners insurance and taxes were then lumped in (something that is actually an okay idea if you’re bad at saving!) unexplained/unbeknownst to them–and all of sudden their loan are $300 a month more…and how do you budget for that id you dont know about it.

Thanks. That really sums things up. And of course 2009 Wall Street bonuses are running at the 2007 level, while we the taxpayers have shovelled in $4 trillion and counting to bail out Wall Street.

FL has a Republican Legislature. The legislature gave the insurance companies what they wanted – removing the cap on premiums for Homeowners Insurance.

Crist vetoed the bill. As Crist will try to win Mel Martinez’s vacated US Senate seat, Crist did not want to be on the record as permitting insurance companies carte blanche.

Crist is a sneaky guy. He learned from JEB!.

Let’s see there are how many adults here in America, divided by the cost of the bailout and stimulus..how much person would we have gotten if that $ was just given to us, and gosh would that have helped the economy?

taxpayers have now paid out 4.1 trillion (what it cost to fight WWII) and have committed over 8 trillion more.
As Herby Hancock sings in the film, “Everybody’s broke”.

Yeah, I found the fact that the Congress backed away from allowing judges to cram down mortgages unconscionable. But it makes the point that they work for the business sector and special interests, not their constituents who are going bankrupt at record rates, not to mention losing their homes and their equity.

Approximately $42,000 for every man woman and child.

States should take their lead from Martha Coakley, Atty General of Massachusetts, who forced Goldman Sachs to cut principal amounts to some subprime borrowers.

That could have helped a lot of people and stimulated a bit..but would it have been giving a fish instead of teaching to fish..?

Like Hugh said, if people don’t get the cram down, they will walk away from their up-side-down positions. This phenomenon will add more fuel to the fire, adding more inventory and driving down home prices even further.

Why pay on a $300K mortgage with a $2500 payment on a house that’s worth $175K? You have your choice of rentals in the same subdivision for a grand a month.

Of course it was unconscionable. The banksters get paid to negotiate loans they would have negotiated without the bonus, they refuse to renegotiate any other loans, and without cramdown, they have no incentive to do it. This way they get rich on the backs of the people they cheated.

It’s clear to me now that there isn’t anyone in the House or the Senate that has the guts to LEAD this country down the path to justice, in this or anything else that shows up on their plates. Where is Mr. Smith, I want him to go to Washington now dammit.

American Casino delves into the mortgage meltdown mess and subsequent downward spiral on Wall Street, exposing the deregulation, greed and heartless manipulation of home-ownership hopes that fueled the real estate bubble.

there’s a small problem with calling those responsible for the mortgage meltdown a “casion”

casion’s can’t lose money, they a fail proof mathematical probability, they ALWAYS turn a profit

those responsible for this entire economic meltdown were gambling, casions don’t gamble people gamble against the casion

I could put that to good use reviving the nation’s economy, and my own.

Was she in the movie?

Thanks for finding my typo..I am a little dyslexic…

Isn’t this loansharking, usery (sp), RICO?

American Casino sounds cool, though. Like DiNero might be in it.

But Lisa, you would have had no banks to put your money in! (Heheheh)

This is why house values will probably continue on down. Now higher value houses are being foreclosed on — we’ve moved beyond subprime — so as people with milliondollar loans realise their house is worth half that, they too will walk away. This won’t end until houses return to pre bubble levels, at least.

Well, that makes some sense, too! Forced the banks to mark to market against all their totally unreasonable objections.

Loansharking? yes indeed. In fact you can trace this disaster back to the repeal of the usury laws that used to limit interest, back at the end of the 1970s.

Most of these banksters are connected like Bushies. Above the law and untouchable. Obama don’t wanna touch the Bushies and he dont’ wanna touch the banks except to give them more money so they can buy more banks. They are too big to fail. If they are not too big to fail, they are sold to the ones that are too big to fail.

Andrew, Leslie, you were at Tribeca Film festival–where else will you be showing? What are the plans for American Casino?

Too big to foil.

I concur. Say, are you Alexander’s brother? I love that guy.

alot of people in Wall Street’s casino made alot of money. “all these agents along the value chain with no skin in the game” as a banker in the film says. And, as Mark Pittman of Bloomberg says, “When you’re in the street’s casino, you play by their rules.” Interestingly enough at a New York screening, where there were lots of Wall St bankers present, a Las Vegas man involved in the casino business said casinos were far more honest than the banks because casinos are regulated.

In the words of the inimitable Sarah Palin, you betcha!

We are about to go into theaters in a lot of cities, starting with Chicago this coming weekend. Then San Francisco (Aug 21, Roxie theater), New York (film Forum Sept 2), Los Angeles, Washington DC and a lot more. To get ful details on theaters and times, look at our website americancasinothemovie.com/theaters.

That’s me, there’s also my brother Patrick, who covers the middle east.

Before we go – where did you find that great music /soundtrack?

also Milwaukee aug 28th, Denver mid Sept, LA sept 18th Santa Fe sept 25th

Thank you both so much for being here and for making a movie which explains this mess from both the financial and personal angles. Pups, this is a must see–

And thanks pups for joining us tonight for a really thoughtful discussion!

Next week we’re discussing GOOD FOOD about the organic food movement in the Northwest..see you then.

And thanks again Andrew and Leslie

Okay, I have a question for anyone that knows or has an opinion on the answer: how do you think the next round, the Alt A and Option (I forget what they’re called) ARMs? will affect the barely recovering economy?

thanks Lisa

Was talking with my niece a week and a half ago about the McMansion they bought two years ago. She says it’s too big. Fortunately, her husband is a civil servant making a salary that can handle the mortgage, but it just goes to show that even reasonably prudent people could get caught up in the ‘rush’ of buying a luxury home they didn’t need.

I’ve seen your work at Counterpunch. I like you very much also. I just see your brother’s pieces in The Nation more often. His last one ‘Let Me Be Clear’ was a scorcher. Excellent. You guys are awesome. I am not worthy. :)

Well, we wanted Springsteen’s track of Woody Guthrie because this disaster echoes the Depression. Herbie Hancock “Everybody;s Broke” was being played in the Bear Stearns trading room. Those great hip hip tracks came from the streets of Baltimore because we put the word out to see if anyone was writing music about this stuff — and got a flood of responses (over 60)

Thanks everybody. That was great.

BINGO!

where are usury laws when we need them?

One more disaster. Also prime loans are going down.

I think you will have the greatest impact on television, PBS. Any talks with them? or too soon?

Keep an eye on our website

We’re staying away from TV until we’ve shown in lots of theaters — we want people to see this on the big screen and then talk about it.

OH, it’s time to go…
Well, thank you both so much for being here.

Thanks special to Lisa & Bev for setting it up. Sounds like a must see documentary. Good Luck with it, and may you open a gillion eyes.

Thank You. Great Opportunity to communicate with Andrew and Leslie Cockburn. I’m stoked.

I think you’re right for the most impacted urban and suburban markets, but many lower growth regions weren’t highly leveraged to begin with. I think housing prices will, nationally, see a bit of an uptick due over the next year, attendant on a weak recovery. These underleveraged markets will drive that growth even while CA, FL, NV, GA, AZ etc still hemorrhage value albeit at a slower rate than now. I hear the housing markets in Buffalo and Elmira are quite hot these days.

Is anyone going to be prosecuted for fraud?

Did they have a deal with Bushies so they would know they would never be prosecuted?

And we have how many homeless people in America who might like to live in and maintain a nice house? *sigh* Sometimes America is just plain stoopid.