The University of Bob is proud to offer an exclusive look at a most extraordinary book, "AMERICA---HOW WE GOT THIS WAY" written by historian Hubert Hindsight, Ph.D., and published in the year 2020. From his vantage point, Hindsight looks back on some of our most defining events. He urges all readers to engrave in their minds the saying of philosopher George Santayana: "Those who cannot remember the past are doomed to repeat it." Hubert's quotes will appear from time to time, and can be identified by the "Looking Back" logo.
Chapter 8, "Like Locusts, They Just Keep Returning."
In the second decade of the 21st century there arose a phenomenon---still not under control---that critically threatened the world's financial stability. Known as "ACEs,", then "ABCDs," it had been gestating for many years. It resembled the most horrific swarm of locusts imaginable. Presidents Hillary and Chelsea Clinton couldn't stop it, and now, in 2020, with the Bush twins running for Co-Presidency, the threat still exists.
The Locusts came from all walks of life. Some had been used car salesmen. Some had been real estate hustlers selling vacant lots in the wilderness. Then they graduated to the world of banking and high finance. They had very special skills enabling them to sell over-valued products to people who either didn't need them, couldn't understand them, or were just plain greedy.
Most of those sales required the buyers to sign I.O.U.s, which would typically involve a high rate of interest. Banks and other investors were anxious to buy these I.O.Us to cash in on the high interest. When the authorities started to discover that a lot of the transactions involved fraud-----the land was sold on false pretenses, the used car had had its odometer set back, etc.----new laws began to put the scams our of business. They may have stopped the scams. But there was no way they could stop the scammers, the Locusts. They had skills that would always be profitable, so they just sat back and waiting for their next opportunity to sell junk.
It didn't take long for those new opportunities to pop up. The Locusts, their skills honed to near perfection, had great success through the 1970s and 1980s selling time-share condos, travel agencies, taco franchises, motivational seminar companies and television shows promising fast and easy riches. The pickings were ripe, but the Locusts' hunger was never satisfied.
Bigger Bucks on the Horizon
In the 1980s the Locusts invaded Savings and Loan companies, America's prime source for home loans. They posed as appraisers, overvaluing properties right and left. They posed as loan officers, making doomed-to-fail loans based on the excessive appraisals. They posed as builders who sold homes for far more than their true value, with the builders pocketing the excess (after sharing with his co-conspirators.)
The swarm was nation-wide. The entire Savings and Loan industry caved in. And because most of the S&L deposits were insured by Uncle Sam, U.S. taxpayers had to foot the bill for over $300 billion that the failed S&Ls owed their depositors. As icing on the cake, a stock market crash followed soon after.
But wait. There's more. In the 1990s the Locusts spread their next generation of larvae. Dot-com was all the rage. Clever techies created internet browsers and thigamajigs and business plans and double-latte-frappucinos and all kinds of science-fiction stuff that lenders and investors couldn't throw enough money at. Visions of fortunes danced in their heads.
The Locusts posed as venture capitalists who invested $25 per share in InterGalactic GigaBytes (IGGB) and started a pump-and-dump campaign (pump up the price per share and then dump it asap.) The Locusts posed as Wall St. analysts who said that IGGB would go to $300 per share by next Tuesday. And it did. The Locusts posed as stock brokers and mutual fund salesmen who said that IGGB would go to $400 by Wednesday. And it did. And all along the way there were Locusts posing as financial commentators who said that the venture capitalists and the analysts and the stock brokers were all right.
When the dot-com market crashed the Locusts all swarmed to Houston and nested in a place known as the Enron Building.
Mortgages Again---With A Twist
After devouring Enron and its wannabes, the Locusts revisited the mortgage markets. By now they had mutated into very clever money-crunchers. Once again the Locusts posed as appraisers and loan officers and builders, but now they were the 3.01 models. They created doomed-to-fail loans worth trillions of dollars, disguised them in intricate packages of securities mixed up with good quality debts and legal gobble-de-gook, and sold these packages to investors all around the world.
When it appeared that so many of these packages would default, lenders got cold feet and the financial world that is lubricated by borrowed money was in danger of grinding to a halt.
By 2009-2010 the mortgage crisis began to fade, as loans once thought worthless were being repaid bit by bit, and the clouds of doom began to dissipate. But the swarms of Locusts didn't dissipate. They grew even more powerful, more threatening.The government imposed strict regulations on all the players in the home loan industry, and they returned to safer traditional lending practices. So the Locusts had to create new abra-cadabra to sate their lust for money.
Any Debt Will Do
The Locusts knew that any debt, or I.O.U., properly structured, could be sold to investors. If X owes Y $100, plus interest at 6% per year, there will always be a Z to whom that 6% return would look attractive. So Z would buy X's I.O.U. from Y. That's the essence of doing business, and has been since the dawn of time.
If the debt is collateralized---that is, something of value can be grabbed by the lender if the debt isn't paid---so much the better. Collateralized means "safety." But what if the true value of the collateral is questionable?
Over the years car loans, credit card debts, home loans, student loans, etc.---all of these had long been turned into investment packages, but now they were were either too tightly regulated or not profitable enough.
How about bank escrow accounts? What are they? When banks lend people money to buy a home, they often require the borrower to make extra monthly payments to cover their property taxes and property insurance. That money is held in an "escrow account" and is used to pay the taxes and the insurance bill when they come due.
Say that the monthly payment for the mortgage alone is $1,000, and the monthly tab for taxes and insurance comes to $350. The loan agreement could then require the borrower to pay $1,350 per month. When the taxes and insurance become due the bank pays them out of the escrow account. Many borrowers like this arrangement---it's a sort of enforced savings to cover those big bills. SMALL PRINT: If the borrowers don't pay their monthly escrow amount, they could be in default on the mortgage.
The dollars that accumulate in those escrow accounts are, in a sense, debts that have to be paid to the city and to the insurance company. Many cities and insurance companies would rather have that monthly inflow, instead of getting it yearly, so they could spend or invest the money as it flowed in more rapidly.
So, said the newest breed of Locusts, let's convince the cities and insurance companies to agree to take, say, 90 cents on the dollar to get their money monthly instead of annually.
Using the above example, the Locusts buy an escrow account for $3,780 (90 cents on the dollar, or 90% of $4,200.) The city and insurance company agree to take the $3,780 in full payment for the taxes and insurance. That leaves Locust X with the $420 difference---a nice profit for their work, which can be handled by a couple of computer clerks. Multiply the $420 by millions of such loans, and you're talking serious money.
Thus were created ACES---Accumulated Cash Escrow Securities. They became really hot. Good return. Safe. The Locusts created a gazillion dollars worth and sold them in little chunks to pension funds and mutual funds all over the globe. The ACES were so successful that similar plans were started for life insurance premiums and for auto insurance premiums and for estimated income taxes that self-employed people pay, and for any and every form of I.O.U imaginable. They all funneled through banks.
The Plot Thickens as the Government Enters the Scene
None of the above "payment due" items are really collateralized. If you don't pay your life or auto insurance premium, nothing gets taken away from you. You just lose your insurance. Also, there is no taxable event in paying those bills: Uncle Sam doesn't get a cut from what you pay your insurance companies.
Enter the U.S. Government. By the final years of Hillary Clinton's administration, the staggering national debt had doubled since the G.W. Bush years because of Mrs. Clinton's final but costly success in passing a national health insurance law. Congress then---at Hillary's bidding--- passed a law saying that those "payment due" transactions were, indeed, subject to a new-fangled tax they called a Transaction Levy. Income from that levy, it was felt, could reduce the national debt and, within just a few years, could make the government solvent again.
"Pay a little bit extra now to avoid a real mess a few years later," Congress and Hillary told voters. But the SMALL PRINT stated that if anyone failed to make a "payment due" on time, it would be tantamount to being delinquent on your incomes taxes. Uh-oh.
The Locusts pushed hard for this new tax because they saw as a new form of debt they could sell. They called them ABCDs, or Aggregate Bank Collateralized Debentures . ALL of the "payment due" items were lumped together as investment packages and sold to eager investors around the world. Safety was the key feature of ABCDs. Being delinquent with the IRS was such a threat that no one dared skip their payments, and thus every analyst on Wall St. gave ABCDs the highest quality rating: AAA.
But trouble was lurking. When Chelsea Clinton was elected to succeed her mother as President in 2016, her first initiative was to get rid of the Transaction Levy. There was never enough of a majority in her party to kill the levy, and the battle has raged since. Chelsea's alleged motive for turning against her mother was not fiscal policy, but, as she said, "Mom could have been a little more strict with Daddy."
Co-Presidents?
As this is written, the Bush twins, Jenna and Barbara, are running on the Republican ticket for the office of Co-Presidents, and they have made it clear that they will continue to support the Transaction Levy. At stake is the entire U.S. economy. Suspending the Transaction Levy would prompt tens of millions of people to skip their payments due, and the approximately $19.76 trillion in ABCDs would be downgraded from AAA to the lowest rating: Junk.
What the Locusts had wrought threatens to throw the financial world into total chaos. We had forgotten the past, and the final bill is now coming due.
A momentous legal battle is assured, but politics being what they are, Supreme Court Chief Justice Alito, appointed by the twins' father, is known to favor retaining the levy. His vote would be the swing vote to keep the levy in place.
(The legal challenge to the twins running as co-presidents is yet to be heard by the Supreme Court, but their recent ground-breaking decision* regarding the number of people constituting a marriage is a strong indicator of co-presidents being allowed.)
* In A.C.L.U. vs. United States, 2019, in a 5-4 vote the Court said that since the Constitution does not specifically prohibit a marriage between three or more people, then it follows that the Presidency---also not specifically prohibited from being more than one person---can consist of two or more people as co-Presidents. "Even though the Constitution refers to 'The President' in the singular, it does not specifically say that the President cannot be more than one person." This was the crux of the deciding vote, written by Justice Scooter Libby, G.W. Bush's last minute appointment on his final day as President.
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