By Simon Johnson, James Kwak
Despite its key function in growing the ruinous monetary obstacle of 2008, the yank banking has grown greater, extra ecocnomic, and extra immune to legislation than ever. Anchored via six megabanks whose resources volume to greater than 60 percentage of the country’s gross family product, this oligarchy proved it may possibly first carry the worldwide financial system hostage after which use its political muscle to struggle off significant reform. 13 Bankers brilliantly charts the increase to strength of the monetary quarter and forcefully argues that we needs to get a divorce the massive banks if we wish to keep away from destiny monetary catastrophes.
Updated, with new research of the government’s contemporary try and reform the banking undefined, it is a well timed and specialist account of our stricken political financial system.
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Additional info for 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
To make these loans more appealing to investors, the mortgage also came with a large prepayment penalty to lock the borrower into at least some period of high interest rates and thus outsize profits. These loans were sold to people who had poor credit and were often minorities with the pitch: “You, too, can buy a house with this mortgage. ” Finally, when the ever-increasing price of houses driven by loose lending practices drove pretty much everyone out of the market, the banks and financial industry began pushing what came to be called the option ARM.
Since the corporation that issued the stock is the only one with the right to create new shares, a naked short effectively counterfeits the stock certificates in question. Counterfeiting shares of a company’s stock tends to depress the price by diluting the value of all real shares with the newly created fake ones. Of course, eventually the person who shorts a stock naked will want to cover, or buy back, the naked short position. When the shortseller attempts to do so, he must buy shares. Where do those shares come from?
The two corporations started issuing what we now call mortgagebacked securities (MBS), which gave the public a means to purchase both the cash flow and the success or failure of mortgage debt through the public markets. In theory and the black letter of the law, mortgage bonds issued by these institutions had no actual federal backstop, but we would learn in 2008 that this was not true in practice. The banks, for their part, became the sales conduit for these mortgages, originating them to borrowers and then immediately selling the mortgages off to Fannie and Freddie.