Toxic loans were a form of speculation, like Tulip futures that were bought and sold into a churn without delivery. The speculation in toxic housing lending came from duped investors. The investors were betting on the continued stability and increase in the housing market. Santelli said borrowers speculated, but that was not quite right. Most home buyers had no idea that the investors were speculating, thereby giving the borrowers the ability to take out easy money loans. While the loans themselves were not technically criminal, the CDO’s and the CDS’s that were turned out at the investor end were most certainly criminal.
Of course, the speculation was even masked to many investors, who believed that they were purchasing safe bonds. Therefore, the root of housing speculation lies with those that underestimated the risk of the CDO’s and related CDS’s. The investment banks and Basel 2 are responsible for the fraud. When crime is located that high up on the food chain, only education and protest can alert mainstreet. Speculation becomes a standard business practice.
There is a simple answer to this speculative attack on borrowers. We must boycott the 30 year mortgage. Just as the futures speculation ended, as people no longer trusted the trading without delivery of tulips, so then is the equivalent the boycott of the 30 year mortgage as a way of protecting investors and borrowers.
Indeed, Will Rogers said this about the uselessness of banking speculation:
“You can’t break a man that don’t borrow; he may not have anything, but Boy! he can look the World in the face and say, “I don’t owe you Birds a nickel.” You will say, (if everyone stops borrowing) what will all the Bankers do? I don’t care what they do. Let ’em go to work, if there is any job any of them could earn a living at. Banking and After-Dinner Speaking are two of the most Non-essential industries we have in this country. I am ready to reform if they are.” WA #14, March 18, 1923 (Willrogerstoday.com)
He was willing to give up his massively popular column in the New York Times if bankers would give up speculating! Speculation is being built into our economy, and uncontrolled speculation is here and should be banned. When Joe Weisenthal of Business Insider says that speculation does not drive prices of commodities, but rather supply and demand, one just has to look at the case when fear takes over. When fear of Greece demise overcomes greed, commodity prices go down. This is clearly a result of a pull back in speculation. And remember, tulip mania almost ruined the financial system of the Netherlands. Rampant speculation has no place in the financial world.
It is my view that two types of speculation should be banned. Buying and selling of futures without taking delivery should be banned. And allowing easy money in such quantity that it actually drives up the prices of houses should be banned. Otherwise, Americans will get wiser and wiser and will refuse to play the game. If that happens I will have to do something productive rather than writing these articles. I promise.
For a great overview of the tulip mania please check out this website. I have no idea who the folks are who wrote the article, but it has merit. Also, CNBC and Melissa Francis keep talking about the risk trade. Let’s just call it what it is, the speculation trade, a very hurtful attack on mainstreet.It doesn’t sound so nice when you call it the speculation trade. CNBC seems to have a euphemism for everything. And as for Rick Santelli, people bet as he says because they were deceived. If people don’t know they are betting how can that guy actually call it a bet?
My Will Rogers ebook is available on Amazon.com.
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