Smith 11-15 Flashcards
United Airlines goes bankrupt due to empty promises of pensions to employees; Tilton raped employees for as much money as possible and cut 26000 jobs in the process; In the end employees not only paid for their own 401ks but also worked more with less pay.
United Airlines Bankruptcy
Debtor In Possession; group of banks that lend money to a bankrupt company to lay (super priority) claims to the remains of the firm after bankruptcy has been carried out.
The “DIP” club
Introduced into the tax code in 1978; goal was to provide a tax shelter for high income executives (cut their taxes);
The 401(k) (creation)
401(k) became a principle of American retirement along with Social Security once the mutual funds industry started advertising it as “Managing your own money.”; this marked the end of companies paying for the people’s retirement.
The 401(k) as retirement plan
The financial industry (mutual funds and banks that manage 401ks) take 2% of the 5% gain your supposed to make a year with 401k accounts; These fees go to Wall Street.
The mutual fund bite
$6.6 trillion; (What people really need at 65) - (What they have in their 401k plans comes to negative $6.6 trillion dollars), it may even be 1.5 trillion greater than that; the 401k isn’t working.
Nation’s retirement fund deficit
Went from Family friendly to Money Hungry ultimately ended up going bankrupt, raping middle class borrowers and even their employees on the way down
WaMu
Purchased by Washington Mutual; utilized as the subprime mortgage loan machine; ultimately resulted in bankruptcy of WaMu
Long Beach Mortgage Co.
Two types; NINA - no income no assets given; NINJA - no income no job no assets required.
No-Doc loans
No income No job No Assets; subprime mortgage loans were made without consideration of the buyer because the risk no longer belonged to the banks, but to the Wall Street brokers buying the mortgages from them.
NINJA loans
Banks were selling trash loans to people under feigned AAA bond ratings; when people found out they sucked the banks began to bankrupt (including WaMu) and federal takeover ensued
Liar’s loans
wanted the federal reserve to step in and regulate the subprime market (swollen to $625 million) because low income people were sealing their fates by borrowing money they couldn’t pay back; wild west; 51 percent of loans came from finance companies and mortgage brokers
Ed Gramlich
Wall street banks and the subprime market could regulate themselves and the free market can be trusted; government oversight and regulation are unnecessary impediments.
Greenspan’s model
Banks began selling people mortgage loans that instead of allowing them to eventually own their house, drained them of their finances and their home equity (how much of their home was theirs); People’s homes became ATMS because of the loans that became available to them after their initial mortgage loan
The upside down mortgage
The goal was to sell a high volume of junk mortgage loans to increase volume and speed of income; This marked WaMu’s change from Family Friendly to Money Hungry
New mortgage game
