October 30, 2007 (LPAC)--As credit markets froze in August, failing lenders found a way to tap $163 billion from 12 Federal Home Loan Banks, a program which was set up during the depression, and designed to save homeowners, not speculative lenders. Mortgage companies Countrywide Financial, Washington Mutual, Hudson City Bancorp and "hundreds of others" borrowed a record $163 billion from the 12 Federal Home Loan Banks during August and September. These government institutions were making loans for 4.9%, when the market rate had jumped to 5.63%. Bloomberg estimates that, with this ruse, the lenders were able to save about $1 billion in interest, and in the process, stuck the federal government with the worthless paper. This is in addition to the billions they got from Citigroup and others.

The land banks sold $143 billion of short-term debt in those two months, according to the FHLBs' Office of Finance. The sales "pushed outstanding debt up 21% to a record $1.15 trillion, a debt which is now on the backs of U.S. taxpayers, and which Bloomberg news quips "may become a burden," since, "almost half comes due before 2009." Sales of mortgage-backed bonds dropped from a monthly average of $115 billion in 2006, to $39 billion in August, a collapse of 66%, forcing speculators to desperation, and to the safety of Fannie Mae and Freddie Mac. As a result, the FHLB's indebtedness rose to a record $311 billion in the first three quarters of this year, the most since 2001, according to data compiled by Zurich-based Credit Suisse Group.

It is just this kind of ill-advised government-backed bail-out of speculators, which LPAC's Homeowners and Bank Protection Act is designed to prevent. The system is collapsing, and it is necessary to prevent the inevitable financial collapse from destroying what is left of the physical economy, as well.