7/31/2023 0 Comments Deja vu seizureSome were sentenced to more than 10 years in prison. Years later, my testimony at the trial as a sitting member of Congress led to the conviction of nearly a dozen individuals including the Republican mayor, the local chair of the Republican Party, and the president of the Board of Aldermen. They were manipulating the ownership of undeveloped land for the construction of townhouses largely using zone changes, friendly appraisers, and bankers. In my Forrest Gump-like life, when I was president pro tempore of my hometown Board of Aldermen, I saw banks fall like dominos and people arrested in a flash. Like two trains heading in opposite directions with contrary objectives but on the same track – a pin in search of a balloon – this could quickly get ugly. But this strategy inadvertently created a banking crisis. Other factors today could be rampant government spending which brought on high inflation, resulting in many interest rate hikes by the Federal Reserve to curb inflation. And the same principles apply: The revenues do not support the debt. Today commercial real estate is the main problem. The pin for the balloon is usually increasingly high interest rates. But when the balloon pops and the values return to earth or interest rates are so high that nobody can afford to buy these properties, everything unravels. This causes existing owners to sell to them and make more money than expected. Here is their method: They buy chunks of an area’s properties with each purchase going for more than previous purchases. However, that does not mean banks should finance the purchase if they see something weird occurring, despite advantageous appraisals, like one entity making several purchases to artificially inflate the price of properties in the area. The value of a property is what people are willing to pay for it. Multiple banks failed in Connecticut, duped investors lost their money, and a region of the country took decades to recover. The FDIC needs more regulators and administrative folks to help protect our banking industry.īack in the late ’80s corrupt folks in my hometown used a similar method. Yet millions of people suffered, and billions of dollars were lost with the fingerprints of bankers all over the transactions. To a degree, we have failed to learn the lessons of 2008. history – First Republic Bank, now part of JP Morgan Chase – follows the Signature Bank and Silicon Valley Bank failures. The forced bank seizure and sale of the second largest bank to fail in U.S. That is exactly what we are witnessing, yet again. When we do not show respect for the law, society crumbles. If you do not punish your dog for relieving himself on your new carpet, or punish the student that disrupts the class, or the company that breaks the law, you get more of the same bad behavior. So, why were hundreds of bankers not arrested during a banking crisis that led to our Great Recession from late 2007 to 2009? Apparently, the banks were deemed too big to fail and the bankers were too clever to get caught. As a result, the whole banking sector was a giant balloon just waiting for a pin to come along. They issued subprime loans to those with poor credit histories held and sold artificially overvalued properties that went underwater – thanks to appraisers and packaged bad or toxic loans which were doomed non-performing loans to unassuming investors and banks worldwide.
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