Mayor and Council OK buying risky Mortgage Backed Securities – with your money !

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8/30/12– This is hard to believe, but true : High yield/high risk Mortgage Backed Securities (MBS) are the latest “investment” the City will engage in on behalf of the taxpayer. Last Tuesday Mayor Don Robinson, along with the Council,  approved a measure by which up to 60 % of the City’s last remaining cash reserves can be “invested” in MBS. (Agenda item V.1 – view agenda pg. 7 and entire agenda).

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FORREST GUMP EXPLAINS MORTGAGE BACKED SECURITIES

”Mortgage Backed Securities are like boxes of chocolates. Criminals on Wall Street stole a few chocolates from the boxes and replaced them with turds. Their buddies at Standard & Poor rated these boxes AAA Investment Grade chocolates. These boxes were then sold all over the world to investors. Eventually somebody bites into a turd and discovers the crime. Suddenly nobody trusts American chocolates anymore worldwide.

Hank Paulson now wants the American taxpayers to buy up and hold all these boxes of turd-infested chocolates for $700 billion dollars until the market for turds returns to normal. Meanwhile, Hank’s buddies, the Wall Street/Congressional criminals who stole all the good chocolates are not being investigated, arrested, or indicted.

Mama always said: “Sniff the chocolates first Forrest” !”

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2008 – FINANCIAL CRISIS

“The monthly cash flow of an MBS is not known in advance, and therefore presents risk to MBS investors”. (Wikipedia).

Let’s take a lesson from history : Just like Forrest Gump, all of us still remember the 2008 financial crisis, a crisis so profound that it almost brought down the entire house of cards. At the center of this crisis were sub-prime mortgages, which were securitized into Mortgage Backed Securities ( MBS). These MBS  in return were “insured” against default by derivatives.

With a collapsing housing market, it turned out that most of these MBS – and the underlying “insurance” derivatives –  weren’t worth the paper they were written on :  as more and more homeowners lost their homes in foreclosure, the underlying collateral of the MBS’s became worthless and the insurers soon became overwhelmed by the losses.

Mortgage backed securities turned into worthless toxic paper. Nobody wanted to own them. Some MBS did not even have a market. Ultimately, the taxpayer funded a $ 700 + billion bailout which then diverted a meltdown of the entire financial system.

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MBS TIED DIRECTLY TO “FINANCIAL WEAPONS OF MASS DESTRUCTION”

Mortgage backed securities are impossible to market without the use of derivatives. Billionaire investor Warren Buffet correctly labeled those derivatives “Financial Weapons of  Mass Destruction”.

What more needs to be said ?  Buffet essentially warns : Buy at your own risk !

So why does Mayor Don Robinson think that MBS are a safe place to put our taxpayer money ? Does he think he is smarter than billionaire Warren Buffet ? Does Mayor Robinson put any of his own money into MBS ? No, he does not – according to his own financial filing (view) . We rest our case.

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HIGH YIELD – HIGH RISK  – HIGH COMMISSIONS

Why would anyone gamble with their own, let alone with taxpayer money by seeking such a controversial, high risk investment ? MBS offer high yield  – and high commissions are being paid to place the MBS in the financial markets. Who ends up with those commissions ? We leave it to our readers to connect the dots …

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CONCLUSION

How can we possibly trust Mayor Don Robinson – who has been caught bouncing several checks to the City of Banning (story) – to safely invest millions of our taxpayer money ?

What does Don Robinson, who has no formal education,  know about financial investments in the first place? Absolutely nothing – it seems. The same holds true for the rest of the Council, who all approved the resolution to allow MBS “investments” for Banning.

If the Banning City Council knew what they were doing, they would not put our money at risk with Mortgage Backed Securities. Once again, this is proof that City Hall is run by a bunch of amateurs. They do not realize that, sooner or later, the big “DEBT BOMB” is going to explode …

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