More words on Bank's multiple plays

Note to sent to my Senators:

Dear Senator,

I have written you a select few letters with respect to finance, the mortgage industry and the ineffective job being done by Mr. Paulson over at the Treasury.

This note is a follow up and a call to reform and or revise our current laws governing banks and brokerage activity. Much attention has been placed on the activities these firms are allowed to partake in with respect to the individual investor but even though our laws recognize other firms as “individuals” legally, the laws on the books are not being enforced with respect to how these firms deal with their corporate clients.

We now have a meltdown in various credit markets as a result of their recent activities, which I might add, were tacitly approved by our former Federal Reserve Chairman, Allen Greenspan even though many of their current activities were disallowed or stringently regulated in laws passed nearly ¾ a century ago.

This paragraph taken from a Bloomberg article today from a statement by Merrill Lynch about their upcoming earnings sums it up entirely with respect to the mortgage mess we now have.

“Merrill is at risk of losses from sub prime defaults because it participates as an investor, lender, counter party and guarantor in markets tied to mortgages. They include CDO underwriting, other structured credit products and leveraged finance, the firm said in the filing.”

You can apply the above paragraph to the leverage buyout frenzy that has taken Wall Street over the past few years as well. Thus not only have these banks have been participating in EVERY aspect of each transaction, they have taken equity stakes in their deals and follow up by creating various esoteric derivative products which they price and hawk to the same funds they are lending to buy them.

There is no doubt that the approximately $300 billion in loan obligations they have on their books right now to finance corporate buyouts are going to cause them headaches. More importantly, their highly leveraged clients no longer have the equity or wherewithal to buy the debt off their books. What they do over the next three months remains to be seen but I fear the collapse of one or more of these private equity buyout firms due to the weight of their debt loads and the inability to refinance them will lead to the same kind of collapse we have seen in the mortgage industry.

This would have far more serious repercussions than anything we have seen in the mortgage industry and bears close watching and preemptive action now to alter the practices of these firms in the future.

Sincerely,

PS; It is important you act right now to stop Wall Street firms form demanding mortgage companies that have had to cease lending operations from wrestling away their servicing business. This threatens homeowners escrow accounts and will cause unnecessary problems you will soon hear about if you have not already. One of the companies causing problems is Freddie Mac. They need to be stopped. See article with respect to this issue here: http://online.wsj.com/article/SB118955540976824460.html