How Wall Street is Ruining America: More Than a Slap on the Wrist, Socialize Lending?

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We’ve been hearing a lot about the Libor scandal lately, and as I’m sure most of you know, the LIBOR rate affects many home mortgages. The London Interbank Offered Rate, or LIBOR, is a benchmark interest rate on which a whole lot of loans and financing is based. The scandel, which started in good ole’ London, is a self-reported estimate of how cheaply banks can borrow very-short-term money from other banks. It’s like the honor system. Only guess what — the banks involved were not honest, and the financiers violated honesty in the interests of profits.

They lied.

And how does it affect us in Dallas? Do you have a credit card?

A student loan or adjustable rate mortgage? About half of all variable-rate student loans are tied to Libor. Out of all adjustable-rate mortgages, 45% of prime loans and 80% of subprime loans are tied to it. State and local governments have exposure to Libor when they use interest-rate derivatives to control their credit exposure. And many types of consumer loans are tied to the rate.

I love this piece by Anthony Mirhaydari at MSN Money, but I disagree with him on a few fronts. Mirhaydari — is he Greek or Persian, not that it matters, he’s smart! — says the answer is more regulation.

I do not think you can regulate honesty. The more laws you enact, the more these weasels will find ways around them with their never-ending armies of CPAs and Harvard-educated attorneys.

The takeaway is that we need tighter regulation and capital requirements for large, global institutions, despite worries from the industry and some on the right that this will reduce profitability and tighten lending.

The 2010 Dodd-Frank financial reform, which addressed the problem with tools like the new Consumer Financial Protection Bureau, was criticized by Republicans as being too harsh. In reality, the package was too lenient, because it failed to address Wall Street titans’ too-big-to-fail status.

I think we need way tougher punishments. While part of me thinks we could just go back to old-fashioned hanging, why not get them where it hurts: the money. Consider this:  “Barclays’ disgraced CEO Robert Diamond was forced out by British authorities for his failures — yet was about to get a “you’re fired” bonus of as much as $31 million before public rancor forced him to relinquish it.”

Let him get the bonus. Then turn around and fine him $32 million.

The idea of socialized lending — that is, the state creating lending funds, or actually going into the mortgage business, scares the hell out of me. The Post Office cannot even stay solvent. Apparently this has been done before in history, it worked, and it would put the banks out of the mortgage business:

“… one remedy would be to bypass Wall Street completely and have the government issue mortgage loans at 0.25%, the upper end of the Fed’s short-term policy-rate window.”

Banks are getting money at 0% right now, then lending it to us — or not lending it to us — for 3% to 4%.

I also think the largest banks in this country should be broken down, as large corporations have been forced to break up when they became monopolies. If the government lent to us at highly discounted rates, that could stimulate the economy:

“On a typical 30-year $250,000 mortgage, a drop in rates from 3.5% to 0.25% would slash payments by 30%, from $1,435 to around $1,000.”

That’s an extra $435 a month a family could spent on food, education or health care. I don’t like the notion of the government becoming a bank. But historically, whenever we have had eras of greed and excess, socialist policies tend to follow to rein it all in.

I myself prefer the noose.



Candy Evans

A real estate muckraker, Candy Evans is one of the nation’s leading real estate reporters. She is also the North Texas real estate editor for, CultureMap Dallas, Modern Luxury Dallas, & the Katy Trail Weekly. Candy has written for Joel Kotkin’s The New Geography, Inman Real Estate News, plus a host of national sites. Constantly breaking celebrity real estate news, she scooped former president George W. Bush's Dallas home in 2008. She is the founder and publisher of her signature, and, devoted to the vacation home market. Her verticals have won many awards, including Best Blog by the venerable National Association of Real Estate Editors, one of the nation’s oldest and most prestigious journalism associations. Candy holds an active Texas real estate license but does not sell. She is on the Board of Directors of Braemar Hotels & Resorts (BHR).

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