• In 1971 Congress created a worthy project with noble intentions the Community Reinvestment Act (CRA). Over strong industry objections, it mandated that all banks meet the credit needs of their entire communities.

• 1995 saw stronger regulations and performance tests that coerced banks to substantially increase loans to low-income, poverty-area borrowers or face fines or possible restrictions on expansion. These revisions allowed for secularization of CRA loans containing subprime mortgages.

• By 1997, greedy bankers started bundling good loans with poor ones and sold them as prime packages to institutions here and abroad. That shifted risk from the loan originators, freeing banks to begin pyramiding and make more of these profitable subprime products.

• Fannie Mae and Freddie Mac joined in the "greed fest." By 2003, these "quasi-governmental agencies had $1.5 trillion in outstanding debt and a bill was proposed to "rein" things in.

• In 2005, a bill was proposed to "bring some oversight to Fannie and Freddie." Google the words inside the quotation marks if you are curious as to who proposed such a bill and who defeated it.

• These subprime products have now permeated the entire world economy.

• Of course, it doesn't help that our politicians have spent like "drunken sailors," refused to move toward energy independence and terribly divided this nation by politicizing the "war on terror."

FOLLOW THE MONEY - If you want to see what is really going on with our country, you might want to spend some time at OpenSecrets.org. It is a nonpartisan guide to the influence of money on U.S. elections and public policy. This site shines a lot of light on our government. Of particular interest, are Heavy Hitters and checking out specific contributions from all the "distressed" companies.

WAMU - Washington Mutual became the largest bank failure in history, but apparently the system worked.  The collapse was handled smoothly through the teamwork of the government and the private sector. The FDIC held an auction among potential acquirers and JPMorgan Chase had the winning bid. The banking giant assumed all of WaMu's deposit obligations (uninsured as well as insured) for $1.9 billion. Of course, WaMu stock holders "took it in the shorts," dropping from a 52-week high of $36.47 to about 15 cents per share. Looks like history is repeating itself...at the turn of the 20th century, J.P. Morgan (the man) owned much of the country's financial interests and it looks like JPMorgan (the bank) may soon do the same.

J.P. MORGAN REINCARNATION? - The original J.P. Morgan is largely credited with saving the nation's banking system during the Panic of 1907.  According to a Reuters article, the current JPMorgan Chase chief executive, Jamie Dimon, "is starting to look a little more like this century's incarnation of John Pierpont Morgan."  Check out the article here.  

WACHOVIA - Another troubled bank, Wachovia, has sold its banking operations for $2.1 billion to Citigroup in a government-brokered deal.  The acquisition turns Citigroup into a truly national retail banking operation.

BANKING CONSOLIDATION - The recent unprecedented consolidation in the banking industry has produced three big players:  Bank of American, JPMorgan Chase and Citigroup.  At the end of last year, these three banks collectively held 21.4% in assets.  That figure has risen to 31.3% in just a matter of the past few weeks.

FEDS BAIL OUT AIG - The world's largest insurance company, American International Group (AIG), has signed a definitive agreement with the Federal Reserve Bank a two-year, $85 billion revolving credit facility. Interest will accrue at a rate based on three-month LIBOR, plus 8.5%.  AIG also will pay a commitment fee on undrawn amounts at the rate of 8.5% per annum. Interest and the commitment fees are generally payable through an increase in the outstanding balance under the facility.  Meanwhile, AIG is running ads thanking their stakeholders for sticking with them (no mention of U.S. taxpayers in the ad).  AIG has been replaced by Kraft Foods in the Dow Jones Industrial Average, which brings up to... 

THE UNITED STATES OF FRANCE - Here's a somewhat sarcastic take on "the state of our great republic" from Time...How We Became the United States of France.  

AND THEN THERE WERE NONE - First Bear Stearns failed and was swallowed by JPMorgan Chase.  Then came Lehman Brothers which filed for bankruptcy and Merrill Lynch, which was taken over by Bank of America.  That left two standalone Wall Street investment banks - Goldman Sachs and Morgan Stanley.  But they are no more.  Goldman Sachs and Morgan Stanley have been converted into bank holding companies, putting them under the Fed's supervision while enabling them to grow their retail banking operations.  So ends "the era of the Wall Street investment bank, a storied institution that traded stocks and bonds, advised mergers and showered lavish bonuses on its executives."

BUFFETT BAILS OUT GOLDMAN - Warren Buffett, the country's most famous investor and one of the world's richest men, is investing $5 billion in Goldman Sachs, the embattled Wall Street titan.  Buffett's company Berkshire Hathaway will receive perpetual preferred shares in Goldman, which will pay 10% or $500 million a year. Those dividends take precedence over other payments to common shareholders. Goldman has the right to buy back the shares at any time for a premium of 10%. In addition, Berkshire Hathaway will receive warrants to buy $5 billion in common stock at a strike price of $115 a share, which can be used at any time in a five-year period. Goldman shares are now up to about $135 per share. Looks like "The Oracle" cut a lot better deal than the Feds.  Here's some more on the deal from www.bloomberg.com.  

NEW YORK TIMES KNEW - Apparently the NY Times knew something in advance. Here is a quote from Steven A. Holmes published in the NYT on September 30, 1999. "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's." See complete article by clicking here.

FINANCIAL HEROES - In every disaster, there are heroes and maybe those who sold fixed and indexed annuities are they.  I'd venture to say that the very worst annuity is currently better than the most diversified stock portfolio.

SEC, FINRA AND ROME - Just because they and other "regulators" have allowed the economy to go into the toilet, don't look for FINRA and the SEC to back off on their attempts to regulate indexed annuities. The trend to allow the "Masters of the Universe" to "get away with murder" while hammering the "little guys" is likely to continue.