Scroll down to second half of post for banking and housing market crisis.
Comprehending why the Government is prosecuting online poker instead of the banks and financial houses was posted in a comment by Karim. Saturday night, I wrote about the housing market, a very sensitive subject for me (see bottom of post). Then I wrote some hypotheses exploring reason and prediction. Unfortunately, those hypotheses caused more confusion than serving pork chops at Seder. A simple “The Government is prosecuting the banks and financial houses” would have been sufficient, however, I didn’t want to go into a Federal Reserve or “toxic” debate. Furthermore, that short reply didn’t expand on why it made sense our system of justice indicted online poker executives. Here’s my opinion:
Laws: It is common sense that if one screws around with banking laws or the Federal Government, they will eventually be caught and assets will be seized. It’s also common sense this puts customers and shareholders’ money at risk. For example, let’s say Apple began processing sales of “X” but were really selling “Y” so they could avoid a particular tax. It’s only a matter of time before someone gets mad and blows the whistle. At that point, the Government is required to step in or the whistle blower would probably scream taxation without representation. Assuming the stock tanked from the released news, unfortunately, those who owned Apple stock would suffer.
On the contrary, the Government could let Apple slide on the tax issue so the stock wouldn’t tank. Maybe everyone would go merrily along. Which one of those scenarios protects the people?
Due Diligence: Sore losers exist in any industry, the public doesn’t know who has or hasn’t been talking to the DoJ and FBI for the past few years. I seriously doubt the processing kid is the only one talking. The DoJ was hitting poker websites in 2009, they’re aware of the infamous UB scandal and Clonie Gowen case. When indictments hit the news last year, rumors of a big arrest began floating around the poker industry.
Hypothesizing: Is it ok for banks to use bailout money intended for loans to buy up other banks? No, those funds should be used and located based on the agreements made. Similarly, the Nevada Gaming Commission requires casinos to have a percentage of cash for every chip on the floor to protect player’s money.
Let’s assume several people have been informing the FBI. Would it be ok if the sites were using player’s funds and as a result were unable to repay on demand? Maybe, depending on normal course of business but would player’s money wouldn’t be protected? No.
Regardless if thats even a reality, Americans should recognize they sent billions offshore without guaranteed protection. And that may or may not have impacted our stock market, banks and economy.
The boring Housing Market and banking crisis:
Not only am I a license real estate broker (now inactive) but I’m also exempt from the educational requirements for a mortgage broker’s licence. I saw a lot of loans from 1997 – 2007. In 2007, I wrote about the housing crisis but no one cared. I was told that I was paranoid.
I didn’t write the following to say I told you so and it isn’t directed at any one in particular, it’s simply one of my old beefs. The point is… it takes a lot of grain to make one loaf of bread. You can’t single out one piece of grain as the leading cause of economic failure. If you do, you’re either repeating headlines or listening to those with personal agendas. After all, it’s impossible to wag the dog without believers. So, take what you like and leave the rest but rest assured…. ignorance is no excuse…everyone played a part.
I wrote a post in either 2007 or early 2008 about the no-doc loan problem. By the way, that post disappeared in 2009. The point was… people were approved for mortgage loans beyond their budgets. A no-doc (no documentation loan) or low doc loan meant little or no documentation was needed to prove one could afford the loan. The more money put down, the fewer documents needed. The no-doc loan process went like this:
- Prove a certain amount of cash in the bank by supplying 3 months of recent financials.
Voila! Loan approval. No job necessary. Basically, you just proved you could afford a new home for a quarter of the year.
Other things not mentioned?
People signed contracts to buy houses but by the time closing approached, that shiny no-doc loan program was no longer available. Why? Because people were getting loans they really didn’t qualify for and the banks were getting stuck with the note. You had home owners who had taken property off the market because it was under contract but the buyer couldn’t get the loan done. The seller missed out on other opportunities to sell.
People began suing, banks began threatening and commercials encouraged filing for bankruptcy. Builders were stuck with excess inventory that not only did banks take over but then also got the bail-out.
Loans were approved to people who didn’t know the rules or failed to budget appropriately. They didn’t know the mortgage brokers added loan points which increased the payment. Some home owners didn’t know property taxes had to be paid. Some didn’t know their note would be called due in five years. Some knew their five year adjustable rate mortgage meant payments might double, but few prepared to wait out a saturated real estate market. Since it was so easy to get a loan, some mortgage brokers told people what they wanted to hear because they knew if they didn’t, the heavy competition would. By the time Bush and Gore began campaigning, they both warned Americans we were headed into a major recession.
It was only a matter of time before we had defaulted loans, short sales and foreclosure havens. Not to mention severe credit card debt and several natural disasters. It’s fair to assume the banks preferred receiving mortgage and credit card payments rather than 500,000 houses and a bunch of IOUs. American IOUs from buying crap and plasma screen televisions. The banks, consumers, mortgage brokers, Government and natural disasters played a part in our downfall. Americans have forgotten how to look at the big picture.
In hindsight, everyone could have made better decisions but what we would have made up for financially, would have been lost in knowledge. That is the cyclical nature of our world. Therefore, we should move forward to do the right thing rather than focusing on a person, group or institution that hasn’t been perfected.
I’m not claiming these are set in stone facts. I’m just wired to put myself on both sides of the fence to comprehend things on a macro level. I use hypotheses in hopes of finding logic, as surely you know…I’m neither an attorney nor financial advisor. I’m sure more will be revealed. The Government is better than any poker player at keeping their ace in the hole.
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