They Did It On Purpose

Housing Bubble and Crash Were Engineered from the Highest Levels of US Government, Federal Reserve, and Financial Industry

During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.

When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the bubble.

In 2001 the frequency of White House visits by Alan Greenspan increased.

Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.

Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.

The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.

According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed.

Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.

Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.

Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.

Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.

Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.

Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.

George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.

Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.

ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.

State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.

In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.

The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.

Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.

The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.

The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value — $8 trillion — now having been lost in a year. $2 trillion of the losses were in retirement savings.

The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.

Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.

As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.

The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington, DC, on November 15, after the U.S. presidential election.

The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.

Most major retail chains began to close stores and lay off employees even as the Christmas season approached.

The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”

Richard C. Cook is the author of We Hold These Truths: The Hope of Monetary Reform, scheduled to appear by September 2007. A retired federal analyst, his career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is also author of Challenger Revealed: An Insider’s Account of How the Reagan AdministrationCaused the Greatest Tragedy of the Space Age. Read other articles by Richard, or visit Richard's website.

21 comments on this article so far ...

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  1. manitor said on October 23rd, 2008 at 11:52am #

    Related link:

  2. Danny Ray said on October 23rd, 2008 at 1:46pm #

    OK so what do you think the reasoning behind all this is. I spent ten minutes of my life ( which I will not get back ,Much to my regret ) reading this crock of conspiracy crap you wrote and you don’t even have the decency to tell me what you think the hoped for results of the conspiracy is.

  3. papercut said on October 23rd, 2008 at 3:34pm #

    gosh, i don’t see any conspiacy! this article seems to relate the information as it was reported. there are facts contained in this article. and, easy enough to fact-check what i dont know about. the motive of the writer; who knows!? i do not think this is govt/neocon/gop propaganda. nor do i think this article is created by a conspiracy nut. i do thank mr. cook for the article and the concise/blunt way he relayed the info.

  4. TheFafon said on October 23rd, 2008 at 5:59pm #

    I thought that this would be a conspiracy too… but read it and say that this is blunt and truthful, like papercut said.

  5. Brian Koontz said on October 23rd, 2008 at 8:46pm #

    What is being done on purpose is the siphoning of wealth from the American taxpayer to the American elite. This is done in many ways – allocation of the budget (massive contracts given to big corporations), tax cuts to the rich, sub-prime lending, among many others. The reason this is done is that the rich are in control of the economy, and they are enriching themselves out of desire for greater control, wealth, and power.

    It’s not a conspiracy in the sense that a few people get together in a room and map it out – it’s the organic result of the shared interests of the elite – the elite understand, on a fundamental and unspoken level, how to control the world and they simply go about doing it. They will continue to do it until either the world as we know it dies or until they lose power (the ability to act freely).

    It’s not a matter of whether or not the rich will act reasonably – by definition a rich person acts badly. This constant hope of “redeeming” the wealthy is a fool’s task and only serves their interests. Redemption can only occur by removing their power, by whatever means possible.

    Do you conspire to breathe, or do you just breathe? The elite seek to gain power the same way you seek to gain oxygen.

  6. Richard C. Cook said on October 23rd, 2008 at 8:50pm #

    Thanks to all for the intelligent comments and thanks to Dissident Voice for publishing my article. I think the facts speak for themselves.

  7. robert beal said on October 23rd, 2008 at 9:28pm #

    Richard Cook seems to have omitted any mention of democratic complicity. I don’t think the have-nots (80%) of us are going to get any useful analysis here.

  8. Hue Longer said on October 23rd, 2008 at 11:07pm #

    Hello Richard,

    You said,
    “According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed”.

    No one gave literal word, it was just made easier to do. Whenever an unverified loDoc product is offered, it happens. And in a climate with that much refinancing when every used car salesman in the country starts a Home mortgage company doing piggy back loans, it happens. Was it expected to happen? Sure.

  9. Ramsefall said on October 24th, 2008 at 6:01am #

    Mr. Koontz presents an accurate and clear analogy to the foundation on which the wealthy elite pulling the strings operate, “the elite seek to gain power just as everybody seeks to gain oxygen”, beautiful simplicity in that observation.

    After the worst is all said and done, let us recalculate the net worth of the controlling elite and see how much higher they stand on their pile of accumulated wealth.

    For those readers who rely on “conspiracy theory” to degrade any intelligently documented proposition put forth that disrupts your own version of rationality, how about the realization that those who call the shots at the top of the pyramid fail to take your needs into account. The imbalance is so obvious that even the most out-of-touch citizen should have some sensation of suspicion.

    Thank you for connecting the dots Mr. Cook.

  10. Joseph Danison said on October 24th, 2008 at 6:21am #

    Richard Cook has offered what he calls “The Cook Plan”, here: This is a proposal for an alternative banking option based upon the sovereign Constitutional power of the government to issue money. If such a scheme were put in place, the US economy would almost immediately recover from the credit crisis.

    Cook is not the only voice advocating an alternative financial solution. The work of Ellen Brown and Stephan Zarlenga is also dedicated to developing a populist monetary system, ie, a public monetary system to displace the private system that we know as the Federal Reserve. A populist system could be regulated by Congress and subjected to scrutiny by any and all vigilantes via the internet. Policies would not be developed in secret under a public system.

    It is a mystery to me why Cook wants to play with this conspiracy idea when he knows there is an alternative financial model that would liberate the people from the control of the ruling financial elite. To me the idea of an engineered crisis isn’t credible, any more than to say the Challenger disaster was a deliberate policy by a NASA cabal. This is not to say that Cook is wrong in believing that there are lunatics out there who would like to carry out such schemes. These people who base their politics on bogus Biblical “prophecy” really are crazy, certifiable, like that fool James Watt, Reagan’s Sec of the Interior, who saw no reason to protect the environment since the world was going to end anyway.

    Richard Cook should continue to develop his alternative financial model rather than waste his energies in promoting the idea of a malevolent conspiracy. It just isn’t constructive. Bewailing the darkness is a fool’s game.

  11. Richard C. Cook said on October 24th, 2008 at 8:24am #

    Perhaps you are right Joseph, though I tend to think that dissecting how we got to such a bad place brings home the need for change and shows what the change should consist of. Thanks for the comments though.

  12. Michael Kenny said on October 24th, 2008 at 11:26am #

    Titles and subtitles normally come from editors rather than authors. The claim that the bubble and crunch were “engineered” is not borne out by the contents of the article and I assume it comes from the editors, not Mr Cook. What Mr Cook describes (quite well, indeed) is the chain of events as of today, and which has in no way reached its end. The idea that all of this is some sort of dastardly plot going back years is childish and laughable. It reflects more the “born loser” (“they” always win!) mentality of the American left than a rational alalysis.

  13. Sunil Sharma said on October 24th, 2008 at 11:57am #

    The title is the author’s. Personally, I don’t see it as a conspiracy either, for what it’s worth.

    — Sunil

  14. Richard C. Cook said on October 24th, 2008 at 12:06pm #

    I am glad to see so many comments.
    From January 2001 to June 2003 the Federal Reserve cut interest rates 550 basis points. From June 2003 to June 2006 the Federal Reserve raised interest rates 450 basis points. The bubble and its crash were engineered.

  15. cemmcs said on October 24th, 2008 at 6:23pm #

    During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.

    How did the Clinton administration require this and what type of consumers are we talking about? Big mortgages? Small mortgages? People buying mansions or people buying trailer homes?

    According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed.

    According to a mortgage broker this writer spoke to, the whole mess is Roosevelt’s fault (rimshot) but seriously, could you give some more explanation on this. Was this a common experience for mortgage brokers? How did word come down? Where and from whom did word come down? Don’t these guys work on commission?

    I’m just trying to learn more about this and I would appreciate any clarification.

  16. GuyInCT said on October 24th, 2008 at 6:58pm #

    Danny Ray, you asked what the expected outcome is? It is tied into both the democrat and republican love for illegal immigration. They basically want to turn the US into Mexico. Not in the ethnic sense – most of the Mexicans I know are wonderful people. But in the sense that Mexico has a permanent, wealthy privileged political class ruling over a docile, malleable, uncomplaining, populace. The only way you can get that here is by destroying the middle class. That is the dream of both George Bush and Nancy Pelosi.

  17. Joseph Danison said on October 24th, 2008 at 7:50pm #

    I take your point, Richard, about the need to understand the origins of the crisis and the ways and means of those in power. Certainly the proprietors of the private system would conspire to sabotage The Cook Plan, or the American Monetary Act, or any serious encroachment on their monopoly just as the British sank the continental during the Revolution with boatloads of counterfeit script.

  18. Danny Ray said on October 25th, 2008 at 6:58pm #


    Well like the poor Mexicans. I have always wanted to ride on the roof of a train and shoot at federal Troops. but do I have to be called a zapostista? Viva Villa!!!

  19. Jonathan said on October 26th, 2008 at 1:26pm #

    Thank you Richard for this analysis.
    For what it’s worth I would like to concur with some of the writers above that the cries of “Conspiracy Theory” is a bizarre reaction to the information that Richard provides. He is not giving us his theory but rather stating verifiable facts. In addition, saying that it could not possibly have been engineered strikes me as being ignorant of the mechanisms of the economy as well as the ‘expertise’ of economic and monetary policymakers – they know what they are doing!


  20. GuyInCT said on November 2nd, 2008 at 3:36pm #

    Sorry, Danny Ray, no comprendo. Were you just being droll, or were you trying to make a point?

  21. Danny Ray said on November 2nd, 2008 at 6:20pm #

    Sorry GuyIn Ct,

    The point that I was being Droll about was that, Yes, Mexice has a permanent, wealthy privileged political class ruling over a docile, malleable, uncomplaining, populace. But that in the 1870’s the underclass under Villa, and other leaders. spent the next 30 years charging about nothern Mexico on trains. And the end the little guys won, except that then the little guys became the fat cats. and a new group of little guys got on the train. This always happens. In Russia the serfs threw out the upper class and within 5 years there was another privileged ruling class. Same for china, There will always be a ruling class that is how humanity works. during the American Civil War the Black union troops had a saying for when they met a white person they knew before the war. They would say ” Bottom Rail On Top Now” someone always has to be on top and someone always has to be the bottom rail. I wrote all this to say this, before They distroy me I wil be on top of a train somewhere.