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Dear Mr. Berko:

T.A., Everett, Wash.

Dear T.A.:

Don’t you even fantasize about suing that stockbroker! Your broker could never in a hundred, never in a thousand, never in a million years have known that those mortgage REITs would collapse.

While myriad mortgage REITs were losing value every week, brokerages like UBS, Merrill Lynch, Citigroup, Lehman, Bank of America, JP Morgan, Bear Stearns, Prudential, etc., were publicly saying, “Buy, buy, buy.” So if you are in a suing mood, I suggest that you sue the shamelessly greedy brokerage firms (whose executive officers would sell their mothers’ blood) for this narcotizing financial disaster.

Here’s a simple explanation of what happened. Merrill Lynch pays $1 million for a box of mortgages, which it buys from ABC Savings & Loan. This box holds a smorgasbord of really good mortgages, good mortgages, fair mortgages, slightly risky mortgages and very risky mortgages with 30-year maturities. Because there are only a few risky or very risky mortgages and because the underlying real estate collateral is substantial, this box is given a triple-A rating and yields 6.5 percent.

So Merrill Lynch sells this box to XYZ REIT for $1 million. And because this box is rated triple-A, XYZ borrows $900,000 short-term (90 days) at 4 percent, and invests only $100,000 of its corporate capital.

A year ago, there were plenty of investors begging to lend $900,000 or $9 million or more to XYZ REIT on a triple-A box of 30-year-mortgages for three months at 4 percent.

The REIT invests long-term where rates are higher and borrows short-term where rates are lower, and the shareholders earn the difference after executive salaries, wages, rent, office supplies, accounting, legals, postage, perks and kickbacks.

One day the sheriff discovered this $1 million box was not all that it was “packed up” to be. Someone lied. The sheriff interviewed the people who packed the box, and after many months of contentious negotiations, the packers reluctantly admitted culpability. As a result, that $1 million box lost its triple-A rating, the quality of the box became contaminated, and lenders refused to renew their short-term loans to XYZ REIT.

So XYZ REIT had to sell its $1 million box to repay the $900,000 it borrowed three months ago or find another lender. There were no lenders or buyers for that box because it had lost its triple-A rating; XYZ could not repay the borrowed money and is forced to declare bankruptcy.

Merrill and other brokerages own millions of these million-dollar boxes. Because their inventories crashed in value, these brokerages/banks had to beg for money from the Arabs to stave off corporate bankruptcy. This “failure to communicate” with the client (your mother) makes me wonder about the wisdom of members of Congress who forced the repeal of that portion of the Glass-Steagall Act preventing banks from owning brokerages. But give a congressman enough money and he will hitch his mother to a dogsled.