On February 12th, 2009, CNBC aired their documentary called House of Cards, which explained the origins of the global economic crisis and how the US defrauded billions of dollars from Europe, Asia and Canada to buy houses.
Typically, when a lender lends money to a borrower, the lender cares about the borrowers ability to pay back. Hence, a bank typically wants a borrower to prove that he has income and for him to put in a down payment and sometimes collateral.
It did not work this way in the US. Lenders in the US did not care about the borrowers' ability to pay back. This is because:
The people lending the money were not the true lenders. Home buyers got the mortgage money from mortgage brokers, who got the money from Wall Street, who got the money from American and foreign investors.
The true lenders were the investors. However, they did not know who they were lending their money to, nor that the borrowers had no way of paying back.
Wall Street got the money from investors by slicing up the mortgages, packaging them up as mortgage-backed securities, or CDOs (Collateralized Debt Obligations), fraudulently rating them as AAA and sold them to investors as high quality, low risk investments.
Canadian banks are amongst the biggest companies in Canada and safest banks in the world. Yet, only two of the five Canadian banks are AAA rated. Even though many Fortune 500 companies with billions of dollars of revenue and profit cannot get AAA ratings, Wall Street was paying rating agencies to give AAA ratings to home-buyers with a tiny fraction of the revenue and assets, many of whom took out NINJA mortgages (No Income, No Job, No Assets and no down payment).
Yes, the CDOs were complicated and investors should not invest in anything they do not understand. However, most of these investors bought them because they were rated AAA. If the CDOs were not fraudulently rated AAA, the investors would not have bought them. 50% of these CDOs were sold to countries outside the US.
American home buyers lied about their income to get mortgages. In fact, mortgage brokers encouraged this fraud because they were motivated to sell as many mortgages as possible and to anybody. The brokers made fees by selling the mortgages. They did not care if the borrower ever paid back, because these brokers were not the true lenders. As long as the home buyer had a pulse, the mortgage broker wanted to give him a mortgage and collect the fee from Wall Street.
Consequently, Americans bought houses that they could not afford and should never had the luxury of living in them. In CNBC's documentary, a family whose bread-winner made $46K per year, bought a $500K house. Another family, which used to live in the slums of Compton, California, bought a house in the upscale neighbourhood of Yorba Linda. Everybody felt entitled to live the "American dream".
When the price of their homes went up, thousands of Americans re-financed their homes to pull out money so that they can pay off car loans and credit cards, and pay for kitchen and bathroom renovations and swimming pools.
Ultimately, these houses, renovations, cars and swimming pools were paid for by defrauded investors, many of them in Asia, Europe and even Canada.
The city of Narvik, Norway were defrauded into buying CDOs. Now they spend 25% of their budget paying for this loss. CNBC goes on to say that Narvik's next generation will have to continue paying for it.
Almost nobody in China lives in a 2,000 square feet house with a swimming pool. Yet, they were defrauded into paying for these in the US.
All of these new or big houses with renovations and swimming pools are sitting in the US. Even though the prices are coming down now and causing foreclosures, it will be the Americans who will eventually and ultimately get to live in them and enjoy them. Instead of paying $500K, other Americans will pay $200K. However, the investors, many of which are in Asia, Europe and Canada, will never see their money again, nor will most of them ever get to live in 2,000 square feet houses.
Also, many Americans made millions or billions from the housing boom from 2001 to 2006:
- Home Builders
- House Flippers
- Real Estate Agents
- Mortgage Brokers
- Employees of Wall Street firms
Therefore, despite the recession in the US, their overall wealth has increased at the expense of foreign and American investors. Billions or trillions of dollars of homes, cars, renovations and swimming pools, which are the biggest ticket items for consumers, are sitting in the US, paid for by defrauded investors.
This is one of the biggest heists in the history of mankind. Like other white collar crimes, such as insider trading, it is almost a perfect crime. Many of the victims blame themselves for not understanding the CDOs sufficiently or for being gullible. In the case of insider trading, most victims do not even know that they were stolen from.
Now that the home prices are dropping and causing foreclosures, many of these American home owners, who should never have moved into homes that they could not afford, are complaining and adamant that they stay.
Not only have Wall Street defrauded billions from American taxpayers, they have also defrauded billions from Canadians and the rest of the world:
