Financial historians have now cleared yet another page in their 2011 books for the date of September 2, also known as the "Friday Night Massacre." On that day, the U.S. Federal Housing Finance Agency -- on behalf of Fannie Mae and Freddie Mac -- filed a $196 billion lawsuit against 17 of the nation's top-tier investment banks.
The charge: "murder" of the housing mortgage boom in the first degree. Or, in actual legal jargon: For the "omissions of material facts concerning the quality of underlying mortgage loans" sold to Fannie and Freddie only to turn toxic in the 2007 financial bust.
In the words of one news source:
These lenders “acted like organized criminals, financing the sale of products they knew could do nothing but harm. Subprime mortgages proved as bad as drugs in the destruction they have wrought.” (Times Online)
Whether you agree or disagree, the fact is: the subprime mortgage industry was a marked man the moment it went mainstream. Specifically, by 2005’s end, hybrid-adjustable rate mortgages made up 42% of home financing -- versus just 1.9% in 2001.
That year, EWI's March 2005 Elliott Wave Financial Forecast issued these unbelievable -- at the time -- warnings:
· There is "potential for a serious unraveling of the housing market."
· The S&P Homebuilding index would suffer a dotcom-like fall.
· And, "as the most aggressive dispensers of credit to the housing industry, subprime firms are on the front edge of the housing bubble."
Soon after, the July 2005 Elliott Wave Financial Forecast foresaw the bank sector's eventual transformation from poster boy for "achieving the American dream" -- to -- whipping boy for creating the "American housing nightmare." In that issue, our analysts issued this unbelievable insight:
"There's no mistaking it now. The extreme psychology has taken up residence in real estate. Now is the most dangerous time to be on board the home bandwagon. There’s no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages.”
Flash ahead to the September 2, 2011 massacre of U.S. bank stocks and the U.S. government's legal blitz against the sector. Goldman Sachs' CEO recently hired the same white-collar criminal defense lawyer who represented the former accounting officer of -- you guessed it -- Enron.