SEC: Ex-Fannie And Freddie CEOs Misled Investors by Jim Zarroli
The only thing missing from this discussion is that the reason Fannie May and Freddie Mac got into the sub-prime mortgages, which was a social justice program by the Democratic Party called the Community Reinvestment Act that encouraged/required banks to make risky loans, which led to Fannie May and Freddie Mac guaranteeing these risky loans.
Many would like to blame Republicans and Capitalism for the Economic Disaster of 2008, but the facts confirm the problem was produced by Democrats and Socialism.
---------------------------------------
SEC: Ex-Fannie And Freddie CEOs Misled Investors by Jim Zarroli
http://www.npr.org/2011/12/17/143877335/sec-ex-fannie-and-freddie-ceos-mislead-investors?ps=cprs
December 17, 2011
Ever since Fannie Mae and Freddie Mac were taken over by the government in 2008, questions have swirled over who was responsible for the collapse. Friday, the Securities and Exchange Commission weighed in, filing fraud charges against former Fannie Mae CEO Daniel Mudd, Richard Syron — ex-chief executive at Freddie Mac — and four other former executives.
Federal officials say the companies lied to investors about the number of subprime loans they had on their books at the height of the credit boom. They also say the executives knew what was happening and even encouraged the deception.
The SEC says both companies loaded up their balance sheets with many billions of dollars in risky subprime mortgages. By 2007, investors were starting to ask questions, says Guy Cecala, publisher of Inside Mortgage Finance.
"If investors knew that Fannie Mae and Freddie Mac were effectively engaging in risky behavior, they would have theoretically reduced their holdings of their stock," he says.
So, the SEC says, both companies took pains to conceal their holdings from the public. SEC enforcement director Robert Khuzami said Freddie Mac reported in its 2006 annual report that its subprime holdings were not significant.
"In fact, the company had $141 billion of subprime exposure to loans it internally described as 'subprime' or 'subprime-like,' representing 10 percent of its single-family portfolio as of Dec. 31, 2006," Khuzami said.
He said Syron and his two colleagues at the company were well aware of how risky its portfolio was.
"Despite this knowledge, our complaint asserts that these three executives gave speeches and statements to the investing public that boasted of Freddie Mac's low-risk mortgage loan portfolio," Khuzami said.
The SEC says both companies were selective about what they revealed to investors. Fannie Mae allegedly acknowledged a small number of subprime loans, but failed to tell investors it also held risky Alternative-A mortgages, which require little or no documentation of a borrower's income. SEC officials suggest that these executives had an incentive to mislead investors.
"They're basically saying that the senior executives at Fannie Mae and Freddie Mac during this period consciously withheld this information [from] shareholders because it would hurt the value of the company's stock and hurt the compensation that these executives received," Cecala says.
Mudd and lawyers for Syron issued statements criticizing the SEC. They noted that during their tenure, the companies had repeatedly issued disclosure statements that government regulators had signed off on.
The charges are certain to revive the debate about Fannie Mae and Freddie Mac's future. Critics have long complained about the hybrid nature of the enterprises, which were chartered by the government as independent companies. Since 2008, the government has assumed control of the companies, and taxpayers have had to pay out more than $150 billion to prop them up.
Susan Wachter is a professor of financial management at the University of Pennsylvania's Wharton School.
"So this has to be solved going forward. I think there's a lot of controversy and discussion about different solutions and how best to resolve the problem," she says, "but the model as it was out there — this is another indicator of how shaky that model was."
Still, Fannie and Freddie continue to play a vital role in the housing market, providing liquidity that makes it easier for banks to issue mortgages. As long as the housing market remains so weak, no one wants to tamper with that model.
Saturday, December 17, 2011
Friday, July 29, 2011
Fannie/Freddie regulator sues UBS on $900 million loss
Fannie/Freddie regulator sues UBS on $900 million loss
Now this is interesting. The heart of the question is who lied first.
I still believe the problem was created by the Community Reinvestment Act, a piece of Social Justice legislation by Democrats that encouraged/forced banks to make sub prime loans.
Too often, people will let a lie stand, so long as they get a benefit from the lie. It takes a big man to expose a lie even if they do get a benefit from the lie.
Everyone was benefitting from the housing bubble, but now everyone is hurting from the housing market bubble.
---------------------------------------------------------
Fannie/Freddie regulator sues UBS on $900 million loss
ReutersBy Jonathan Stempel | Reuters – Wed, Jul 27, 2011
http://news.yahoo.com/ubs-sued-over-900-mln-fannie-freddie-loss-173400491.html
NEW YORK (Reuters) - The regulator for Fannie Mae and Freddie Mac sued UBS AG to recover more than $900 million of losses after the Swiss bank misled the housing agencies into buying $4.5 billion of risky mortgage debt.
In announcing Wednesday's lawsuit, the U.S. Federal Housing Finance Agency said it also plans more lawsuits to recover additional losses by Fannie Mae and Freddie Mac from investments in private-label debt.
Last July, the FHFA issued 64 subpoenas to banks, seeking details about subprime and other mortgage debt that Fannie Mae and Freddie Mac bought when the housing market was healthy.
The UBS case is part of a push by Washington to hold banks responsible for the nation's housing problems. It is also the latest effort to prop up the government-sponsored enterprises (GSEs), whose September 2008 federal seizure has so far cost taxpayers more than $135 billion.
"From the issuance of 64 subpoenas last year to the filing of this lawsuit and further actions to come, we continue to seek redress for the losses suffered," FHFA Acting Director Edward DeMarco said in a statement.
The GSEs remain crucial to the housing market, having in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress last month shows.
UBS spokesman Peter McKillop had no immediate comment. FHFA spokeswoman Corinne Russell declined further comment.
In May, the government filed a fraud lawsuit accusing Deutsche Bank AG of misleading the Federal Housing Administration into believing many low-quality mortgages issued by the German bank's MortgageIT unit qualified for insurance. Deutsche Bank is seeking to dismiss that case.
According to the UBS complaint, Fannie Mae and Freddie Mac lost more than 20 percent of their investment in over $4.5 billion of residential mortgage-backed securities that the bank sold in 16 securitizations from September 2005 to August 2007.
Filed in the U.S. District Court in Manhattan, the complaint also said UBS failed to do adequate due diligence, and hid or misstated the quality of the underlying loans and underwriting, as well as borrowers' ability to make payments.
Many of the loans were issued by lenders that later failed or went bankrupt, including American Home Mortgage Investment Corp, IndyMac Bancorp Inc and New Century Financial Corp.
According to the complaint, a review of 966 randomly chosen loans from two "triple-A" rated securitizations in 2006 and 2007 found that 78 percent were not underwritten properly.
By May 2011, the complaint said, these securitizations were rated "CCC" by Standard & Poor's and "Ca" by Moody's Investors Service, among the lowest junk grades.
"Fannie Mae and Freddie Mac did not know of the untruths and omissions," the complaint said. "If the GSEs would have known of those untruths and omissions, they would not have purchased the GSE certificates."
The lawsuit seeks to recoup Fannie Mae's and Freddie Mac's losses and undo the purchases, among other remedies.
Other banks including Bank of America Corp and its Countrywide unit have faced lawsuits by investors who claim to have lost money on mortgage-backed debt.
Republican lawmakers in Washington have been trying to reduce taxpayer support for Fannie Mae and Freddie Mac and attract more private capital to the $10.6 trillion residential mortgage market. The Treasury Department pledged in December 2009 to provide unlimited aid to the GSEs through 2012.
The case is Federal Housing Finance Agency v. UBS Americas Inc et al, U.S. District Court, Southern District of New York, No. 11-05201.
(Reporting by Jonathan Stempel; Editing by Gerald E. McCormick, Richard Chang and Matthew Lewis)
Now this is interesting. The heart of the question is who lied first.
I still believe the problem was created by the Community Reinvestment Act, a piece of Social Justice legislation by Democrats that encouraged/forced banks to make sub prime loans.
Too often, people will let a lie stand, so long as they get a benefit from the lie. It takes a big man to expose a lie even if they do get a benefit from the lie.
Everyone was benefitting from the housing bubble, but now everyone is hurting from the housing market bubble.
---------------------------------------------------------
Fannie/Freddie regulator sues UBS on $900 million loss
ReutersBy Jonathan Stempel | Reuters – Wed, Jul 27, 2011
http://news.yahoo.com/ubs-sued-over-900-mln-fannie-freddie-loss-173400491.html
NEW YORK (Reuters) - The regulator for Fannie Mae and Freddie Mac sued UBS AG to recover more than $900 million of losses after the Swiss bank misled the housing agencies into buying $4.5 billion of risky mortgage debt.
In announcing Wednesday's lawsuit, the U.S. Federal Housing Finance Agency said it also plans more lawsuits to recover additional losses by Fannie Mae and Freddie Mac from investments in private-label debt.
Last July, the FHFA issued 64 subpoenas to banks, seeking details about subprime and other mortgage debt that Fannie Mae and Freddie Mac bought when the housing market was healthy.
The UBS case is part of a push by Washington to hold banks responsible for the nation's housing problems. It is also the latest effort to prop up the government-sponsored enterprises (GSEs), whose September 2008 federal seizure has so far cost taxpayers more than $135 billion.
"From the issuance of 64 subpoenas last year to the filing of this lawsuit and further actions to come, we continue to seek redress for the losses suffered," FHFA Acting Director Edward DeMarco said in a statement.
The GSEs remain crucial to the housing market, having in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress last month shows.
UBS spokesman Peter McKillop had no immediate comment. FHFA spokeswoman Corinne Russell declined further comment.
In May, the government filed a fraud lawsuit accusing Deutsche Bank AG of misleading the Federal Housing Administration into believing many low-quality mortgages issued by the German bank's MortgageIT unit qualified for insurance. Deutsche Bank is seeking to dismiss that case.
According to the UBS complaint, Fannie Mae and Freddie Mac lost more than 20 percent of their investment in over $4.5 billion of residential mortgage-backed securities that the bank sold in 16 securitizations from September 2005 to August 2007.
Filed in the U.S. District Court in Manhattan, the complaint also said UBS failed to do adequate due diligence, and hid or misstated the quality of the underlying loans and underwriting, as well as borrowers' ability to make payments.
Many of the loans were issued by lenders that later failed or went bankrupt, including American Home Mortgage Investment Corp, IndyMac Bancorp Inc and New Century Financial Corp.
According to the complaint, a review of 966 randomly chosen loans from two "triple-A" rated securitizations in 2006 and 2007 found that 78 percent were not underwritten properly.
By May 2011, the complaint said, these securitizations were rated "CCC" by Standard & Poor's and "Ca" by Moody's Investors Service, among the lowest junk grades.
"Fannie Mae and Freddie Mac did not know of the untruths and omissions," the complaint said. "If the GSEs would have known of those untruths and omissions, they would not have purchased the GSE certificates."
The lawsuit seeks to recoup Fannie Mae's and Freddie Mac's losses and undo the purchases, among other remedies.
Other banks including Bank of America Corp and its Countrywide unit have faced lawsuits by investors who claim to have lost money on mortgage-backed debt.
Republican lawmakers in Washington have been trying to reduce taxpayer support for Fannie Mae and Freddie Mac and attract more private capital to the $10.6 trillion residential mortgage market. The Treasury Department pledged in December 2009 to provide unlimited aid to the GSEs through 2012.
The case is Federal Housing Finance Agency v. UBS Americas Inc et al, U.S. District Court, Southern District of New York, No. 11-05201.
(Reporting by Jonathan Stempel; Editing by Gerald E. McCormick, Richard Chang and Matthew Lewis)
Wednesday, July 27, 2011
S&P involvement with Financial Disaster of 2008
The following statements are the first time I had seen S&P involvement in Financial Disaster of 2008. It would appear the whole financial industry was involved.
The threat of a downgrade has made Standard & Poor's a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.
S&P Hill Critics
An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom."
Stock Market is Really Just a Gambling Hall
A long time ago, I learned the stock market was just a legalized gambling hall, where the house (stock brokers) had the advantage.
I made a little money, but the big money was made by the stock brokerage companies.
The question is how to reduce the power of the investment organizations, but not kill the investment engine that creates prosperity. Obama tried to take on Wall Street and lost.
The problem is that Wall Street can manipulate both Democrats and Republicans so that Wall Street wins.
-----------------------------------------
U.S. Credit Rating Rides on S&P's London View of Politics on Capitol Hill
By Brian Faler - Jul 27, 2011 12:01 AM ET
http://www.bloomberg.com/news/2011-07-27/u-s-credit-rating-rests-on-s-p-s-london-view-of-washington.html
David Beers may be the most influential political commentator in the U.S. right now, even though he's hardly a household name, that isn't technically his job and he's only visiting.
As the London-based managing director of sovereign credit ratings at Standard & Poor's, Beers will help determine whether the U.S. government's credit rating will be downgraded as a result of the battle over raising the debt limit.
His company has gone beyond competing credit rating agencies to say that it isn't enough for lawmakers to agree to lift the government's $14.3 trillion debt ceiling. Congress and the White House also must agree to a deficit-reduction package to avoid a downgrade in the government's AAA credit rating.
In an interview this week at Union Station, just blocks from the U.S. Capitol, Beers said he views the debt limit fight as a test of lawmakers' willingness to tackle the deficit.
"For us, the issue is not the debt limit -- it's the underlying fiscal dynamics," said Beers, who has been rating governments for the company for 20 years. "It's not obvious to us that this political divide that is proving so difficult to bridge is going to be any more bridgeable three months from now or six months from now or a year from now."
He said he didn't know when an S&P committee would decide whether to cut the credit rating. "Depends on events," he said.
Downgrade Impact
A decision to cut the government's credit rating would likely increase Treasury rates by 60 to 70 basis points over the "medium term," raising the nation's borrowing costs by $100 billion a year, JPMorgan Chase & Co.'s Terry Belton said. It could also hurt the rest of the economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on treasuries.
Yesterday, the markets showed little debt ceiling concerns, as seen in 10-year Treasury note yields hovering around 3 percent, below the average of 4.05 percent over the last decade, and the average of 5.48 percent when the country was running budget surpluses between 1998 and 2001.
On Capitol Hill, House and Senate leaders were trying to advance deficit reduction packages that would clear the way for a vote on the debt ceiling increase that the Treasury Department says must come by Aug 2.
The threat of a downgrade has made Standard & Poor's a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.
S&P Hill Critics
An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom."
In an interview, Levin said he views those faults as conflicts of interest issues that are separate from the S&P's sovereign ratings work, which he declined to criticize. "My gut tells me that they're calling it as they see it and, hopefully, they're not impacted by their previous failures to call them as they should have seen it," Levin said.
Senate Majority Leader Harry Reid, a Nevada Democrat, took a different view. "I wish they had made a few demands when Wall Street was collapsing," said Reid. "They were silent then. Maybe they're trying to get more energized."
July Warning
At issue is a warning the company issued July 14 that there is a 50 percent chance S&P would downgrade the government's credit rating within three months if lawmakers didn't approve a "credible" deficit reduction package as part of a plan to raise the debt cap.
It was the latest in a series of demands from the company over the past year. In April, S&P said there was a one-in-three chance it would downgrade the government within two years; in October, it said lawmakers had as many as five years to address long-term deficits.
In its July report, the company said, "We believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years."
Critics say the company is misreading the political dynamics in Washington and that it shouldn't engage in political prognosticating at all.
"If we fail to increase the debt ceiling, they have every right to take the U.S. down as many notches as they want," said Jared Bernstein, former economic advisor to Vice President Joe Biden. "I don't look to S&P for political analysis" and "their job is not to try to do political crystal-ball gazing. Their job is to assess the reliability of U.S. debt."
U.S. Can Meet Obligations
Bernstein said, "Nothing fundamental has changed in the ability of the U.S. government to fully meet its debt obligations."
IHS Global Insight Chief Economist Nariman Behravesh said S&P has unrealistic demands because lawmakers are unlikely to agree to a major deficit reduction package until after next year's elections. "If they really think there is going to be a comprehensive solution before 2012, they are grossly mistaken," he said.
Where Beers sees ominous gridlock over the debt, Behravesh sees progress. "Think about where we were six months ago: We were talking about stimulus," he said. "The good news is U.S. politicians are talking" about trillion-dollar budget cuts.
He said S&P is "itching to pull the trigger" on a credit downgrade, saying "it's almost like they're overreacting in the other direction" in order "to make up for past errors."
Former Congressional Budget Office Director Doug Holtz- Eakin, who advised the 2010 Republican presidential campaign of John McCain, said S&P is right to question the political will in Congress to address the deficit because it's the central question surrounding the debt.
Political Wherewithal
"There is no question that the U.S. economy remains the largest, strongest on the globe and it has the financial wherewithal to pay its debts," he said. "The question is, is that financial wherewithal matched by political wherewithal? And that's what they're trying to find out."
Beers said critics of the company's record during the housing crisis "know nothing about our sovereign ratings, which have an excellent track record." He said it's impossible to assess a government's credit rating without making judgments about its politics.
"Economic policy is part of a political process," he said. "Every government has to make choices, and it has to do it in some political context, and we have to look at that and decide how plausible that is."
‘Sheer Difficulty'
The gridlock over the debt limit "highlights the sheer difficulty" lawmakers are having coming to agreement, he said, which has prompted S&P to shorten the timeframe over which it wants to see major cuts. He is skeptical that next year's election will be "that decisive on this issue."
U.S. lawmakers are lagging behind other similarly rated governments that have also faced debt challenges, he said, pointing to countries such as Britain that are implementing plans to tighten budgets.
"This whole issue of finding common ground has been on the table since March and it's not as if people aren't trying," he said. "You have to make judgments about these sorts of things."
To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net
The following statements are the first time I had seen S&P involvement in Financial Disaster of 2008. It would appear the whole financial industry was involved.
The threat of a downgrade has made Standard & Poor's a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.
S&P Hill Critics
An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom."
Stock Market is Really Just a Gambling Hall
A long time ago, I learned the stock market was just a legalized gambling hall, where the house (stock brokers) had the advantage.
I made a little money, but the big money was made by the stock brokerage companies.
The question is how to reduce the power of the investment organizations, but not kill the investment engine that creates prosperity. Obama tried to take on Wall Street and lost.
The problem is that Wall Street can manipulate both Democrats and Republicans so that Wall Street wins.
-----------------------------------------
U.S. Credit Rating Rides on S&P's London View of Politics on Capitol Hill
By Brian Faler - Jul 27, 2011 12:01 AM ET
http://www.bloomberg.com/news/2011-07-27/u-s-credit-rating-rests-on-s-p-s-london-view-of-washington.html
David Beers may be the most influential political commentator in the U.S. right now, even though he's hardly a household name, that isn't technically his job and he's only visiting.
As the London-based managing director of sovereign credit ratings at Standard & Poor's, Beers will help determine whether the U.S. government's credit rating will be downgraded as a result of the battle over raising the debt limit.
His company has gone beyond competing credit rating agencies to say that it isn't enough for lawmakers to agree to lift the government's $14.3 trillion debt ceiling. Congress and the White House also must agree to a deficit-reduction package to avoid a downgrade in the government's AAA credit rating.
In an interview this week at Union Station, just blocks from the U.S. Capitol, Beers said he views the debt limit fight as a test of lawmakers' willingness to tackle the deficit.
"For us, the issue is not the debt limit -- it's the underlying fiscal dynamics," said Beers, who has been rating governments for the company for 20 years. "It's not obvious to us that this political divide that is proving so difficult to bridge is going to be any more bridgeable three months from now or six months from now or a year from now."
He said he didn't know when an S&P committee would decide whether to cut the credit rating. "Depends on events," he said.
Downgrade Impact
A decision to cut the government's credit rating would likely increase Treasury rates by 60 to 70 basis points over the "medium term," raising the nation's borrowing costs by $100 billion a year, JPMorgan Chase & Co.'s Terry Belton said. It could also hurt the rest of the economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on treasuries.
Yesterday, the markets showed little debt ceiling concerns, as seen in 10-year Treasury note yields hovering around 3 percent, below the average of 4.05 percent over the last decade, and the average of 5.48 percent when the country was running budget surpluses between 1998 and 2001.
On Capitol Hill, House and Senate leaders were trying to advance deficit reduction packages that would clear the way for a vote on the debt ceiling increase that the Treasury Department says must come by Aug 2.
The threat of a downgrade has made Standard & Poor's a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.
S&P Hill Critics
An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom."
In an interview, Levin said he views those faults as conflicts of interest issues that are separate from the S&P's sovereign ratings work, which he declined to criticize. "My gut tells me that they're calling it as they see it and, hopefully, they're not impacted by their previous failures to call them as they should have seen it," Levin said.
Senate Majority Leader Harry Reid, a Nevada Democrat, took a different view. "I wish they had made a few demands when Wall Street was collapsing," said Reid. "They were silent then. Maybe they're trying to get more energized."
July Warning
At issue is a warning the company issued July 14 that there is a 50 percent chance S&P would downgrade the government's credit rating within three months if lawmakers didn't approve a "credible" deficit reduction package as part of a plan to raise the debt cap.
It was the latest in a series of demands from the company over the past year. In April, S&P said there was a one-in-three chance it would downgrade the government within two years; in October, it said lawmakers had as many as five years to address long-term deficits.
In its July report, the company said, "We believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years."
Critics say the company is misreading the political dynamics in Washington and that it shouldn't engage in political prognosticating at all.
"If we fail to increase the debt ceiling, they have every right to take the U.S. down as many notches as they want," said Jared Bernstein, former economic advisor to Vice President Joe Biden. "I don't look to S&P for political analysis" and "their job is not to try to do political crystal-ball gazing. Their job is to assess the reliability of U.S. debt."
U.S. Can Meet Obligations
Bernstein said, "Nothing fundamental has changed in the ability of the U.S. government to fully meet its debt obligations."
IHS Global Insight Chief Economist Nariman Behravesh said S&P has unrealistic demands because lawmakers are unlikely to agree to a major deficit reduction package until after next year's elections. "If they really think there is going to be a comprehensive solution before 2012, they are grossly mistaken," he said.
Where Beers sees ominous gridlock over the debt, Behravesh sees progress. "Think about where we were six months ago: We were talking about stimulus," he said. "The good news is U.S. politicians are talking" about trillion-dollar budget cuts.
He said S&P is "itching to pull the trigger" on a credit downgrade, saying "it's almost like they're overreacting in the other direction" in order "to make up for past errors."
Former Congressional Budget Office Director Doug Holtz- Eakin, who advised the 2010 Republican presidential campaign of John McCain, said S&P is right to question the political will in Congress to address the deficit because it's the central question surrounding the debt.
Political Wherewithal
"There is no question that the U.S. economy remains the largest, strongest on the globe and it has the financial wherewithal to pay its debts," he said. "The question is, is that financial wherewithal matched by political wherewithal? And that's what they're trying to find out."
Beers said critics of the company's record during the housing crisis "know nothing about our sovereign ratings, which have an excellent track record." He said it's impossible to assess a government's credit rating without making judgments about its politics.
"Economic policy is part of a political process," he said. "Every government has to make choices, and it has to do it in some political context, and we have to look at that and decide how plausible that is."
‘Sheer Difficulty'
The gridlock over the debt limit "highlights the sheer difficulty" lawmakers are having coming to agreement, he said, which has prompted S&P to shorten the timeframe over which it wants to see major cuts. He is skeptical that next year's election will be "that decisive on this issue."
U.S. lawmakers are lagging behind other similarly rated governments that have also faced debt challenges, he said, pointing to countries such as Britain that are implementing plans to tighten budgets.
"This whole issue of finding common ground has been on the table since March and it's not as if people aren't trying," he said. "You have to make judgments about these sorts of things."
To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net
Thursday, May 12, 2011
Discrimination on Basis of Ability to Pay is Just
Discrimination on Basis of Ability to Pay is Just
Discrimination of the bases of ability to pay back a loan should be legal. Democrats are dumber than dirt when they think hope people that do not quality for loans will pay back the loans.
This is not a Civil Rights issue but rather a economics issue.
Democrats loan money to people they hope will pay back the money and Republicans loan money to people they expect will pay back the money. Big Difference.
The Economic Disaster of 2008 was proof that sub prime loans are very very bad. The 1977 Community Reinvestment Act (CRA) started under the Carter Administration and was strengthened under the Clinton Administration. Every American has suffered because of this lousily piece of legislation that was created by democrats to buy black votes.
The Democrats can spin this issue as a discrimination issue, but they need to be called stupid and never ever be allowed to have control of the government.
------------------------------------
A Renewed Crackdown on Redlining
In the wake of the subprime implosion, the Obama Administration has stepped up its scrutiny of disadvantaged neighborhoods' credit access
By Clea Benson
BW Magazine
May 9, 2011
Community activists in St. Louis became concerned a couple of years ago that local banks weren't offering credit to the city's poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators.
Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group's targets, Midwest BankCentre, a small bank that has been operating in St. Louis's predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don't discriminate, Midwest BankCentre's latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices.
The 1977 Community Reinvestment Act (CRA) requires banks to make loans in all the areas they serve, not just the wealthy ones. A Bloomberg analysis found the percentage of banks earning negative ratings from regulators on CRA exams has risen from 1.45 percent in 2007 to more than 6 percent in the first quarter of this year.
Discrimination of the bases of ability to pay back a loan should be legal. Democrats are dumber than dirt when they think hope people that do not quality for loans will pay back the loans.
This is not a Civil Rights issue but rather a economics issue.
Democrats loan money to people they hope will pay back the money and Republicans loan money to people they expect will pay back the money. Big Difference.
The Economic Disaster of 2008 was proof that sub prime loans are very very bad. The 1977 Community Reinvestment Act (CRA) started under the Carter Administration and was strengthened under the Clinton Administration. Every American has suffered because of this lousily piece of legislation that was created by democrats to buy black votes.
The Democrats can spin this issue as a discrimination issue, but they need to be called stupid and never ever be allowed to have control of the government.
------------------------------------
A Renewed Crackdown on Redlining
In the wake of the subprime implosion, the Obama Administration has stepped up its scrutiny of disadvantaged neighborhoods' credit access
By Clea Benson
BW Magazine
May 9, 2011
Community activists in St. Louis became concerned a couple of years ago that local banks weren't offering credit to the city's poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators.
Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group's targets, Midwest BankCentre, a small bank that has been operating in St. Louis's predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don't discriminate, Midwest BankCentre's latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices.
The 1977 Community Reinvestment Act (CRA) requires banks to make loans in all the areas they serve, not just the wealthy ones. A Bloomberg analysis found the percentage of banks earning negative ratings from regulators on CRA exams has risen from 1.45 percent in 2007 to more than 6 percent in the first quarter of this year.
Saturday, October 9, 2010
Bush got the blame, but democrats did the dirt
Bush got the blame, but democrats did the dirt
Very interesting pieces of information about the Economic Disaster of 2008. Bush got the blame, but democrats did the dirt.
All paths lead back to actions in the Clinton Administration.
Barney Frank of Massachusetts has had too much involvement in economic policy and has been wrong too many times.
---------------------------
Lawrence Summers
http://en.wikipedia.org/wiki/Lawrence_Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist and as of 2010 Director of the White House National Economic Council for President Barack Obama.[2] Summers is the Charles W. Eliot University Professor at Harvard University's Kennedy School of Government. He is the 1993 recipient of the John Bates Clark Medal for his work in several fields of economics and was Secretary of the Treasury from 1999 to 2001, during the Clinton Administration.
Summers' role in the deregulation of derivatives contracts
On May 7, 1998, the Commodity Futures Trading Commission (CFTC) issued a Concept Release soliciting input from regulators, academics, and practitioners to determine "how best to maintain adequate regulatory safeguards without impairing the ability of the OTC (Over-the-counter) derivatives market to grow and the ability of U.S. entities to remain competitive in the global financial marketplace." [18] On July 30, 1998, then-Deputy Secretary of the Treasury Summers testified before congress that "the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies." Summers, like Greenspan and Rubin who also opposed the concept release, offered no proof that the contracts would not be misused by financial institutions. Instead, Summers stated that "to date there has been no clear evidence of a need for additional regulation of the institutional OTC derivatives market, and we would submit that proponents of such regulation must bear the burden of demonstrating that need." [19] This argument suggests that the default position in the disagreement was that Summers, Greenspan, and Rubin were right, and that anyone (i.e., Brooksley Born) who disagreed with them bore the burden of proving their position. In fact, subsequent events have proven that Summers, Rubin, and Greenspan misjudged the dangers posed by derivatives contracts.
The lack of regulation that allowed A.I.G. to sell hundreds of billions of dollars in credit default swaps on mortgage-backed securities was a direct result of efforts by the Treasury (first under Rubin and then under Summers), the Federal Reserve (under Greenspan), and the Securities and Exchange Commission (under Arthur Levitt) to deregulate the derivatives markets. The first response to the CFTC Concept Release was issued as a joint statement from Rubin, Greenspan, and Levitt who stated that they "have grave concerns about this action and its possible consequences." [20] Levitt and Greenspan have admitted that their views on this issue were mistaken. Levitt told WGBH in Boston that "I could have done much better. I could have made a difference." Greenspan told a congressional hearing that "I found a flaw ... in the model that I perceived is the critical functioning structure that defines how the world works." [21] [22] When George Stephanopoulos asked Summers about the financial crisis in an ABC interview on March 15, 2009, Summers replied that "there are a lot of terrible things that have happened in the last eighteen months, but what's happened at A.I.G. ... the way it was not regulated, the way no one was watching ... is outrageous."
At the 2005 Federal Reserve conference in Jackson Hole, Raghuram Rajan presented a paper called "Has Financial Development Made the World Riskier?" Rajan pointed to a number of potential problems with the financial developments of the past thirty years. [23] The problems that Rajan considers include skewed incentives of managers, herding behavior among traders, investment bankers, and hedge fund operators who suffer withdrawals if they under-perform the market. Rajan also discusses (on pp. 337–40) the problems associated with firms that "goose up returns" by taking risky positions that yield a "positive carry." This is how the infamous Joseph J. Cassano impressed his superiors at A.I.G. for a decade while sowing the destruction of the firm. [24] During the boom years of the housing market, the credit default swap contracts that A.I.G. Financial Products sold provided a stream of premium payments to the company with no expense stream. That's an example of what Rajan calls "goosing up returns" with latent risk. Rajan asks (on page 388) "If firms today implicitly are selling various kinds of default insurance to goose up returns, what happens if catastrophe strikes?" This is a fair question.
The flip side of the trade is equally problematic. Gregory Zuckerman in his book The Greatest Trade Ever about John Paulson's hedge fund recounts the difficulties that Paulson and others had holding on to their bets against the housing market. Even Paulson, whose timing couldn't have been better, spent a great deal of his time persuading investors to persist with the bet against the market. But month after month, millions of dollars were paid out on the credit default swap premia. The investors saw money spent and gone that could have been used to buy assets with rising prices, or at least held safely with a positive yield. As Rajan puts it (p. 338), "it takes a very brave investment manager with infinitely patient investors to fight the trend, even if the trend is a deviation from fundamental value."
Justin Lahart, writing in the Wall Street Journal in January 2009 about the response to Rajan's paper at the conference recounts that "former Treasury Secretary Lawrence Summers, famous among economists for his blistering attacks, told the audience he found 'the basic, slightly lead-eyed premise of [Mr. Rajan's] paper to be largely misguided.'"[25]
In a recent paper (on pages 285-87), Steven Gjerstad and Nobel laureate Vernon L. Smith describe more fully (1) the contribution of derivatives to the flow of mortgage funds that supported the housing bubble, (2) the concerns that Brooksley Born had raised about the dangers inherent in these contracts, (3) Summers' contribution to their deregulation, and (4) how these contracts precipitated the collapse of the financial system in 2007 and 2008. [26]
On April 18, 2010, in an interview on ABC's "This Week" program, Clinton said Summers was wrong in the advice he gave him not to regulate derivatives.[27]
-------------------------------
Fannie Mae
http://en.wikipedia.org/wiki/Fannie+mae
History
The Federal National Mortgage Association, colloquially known as Fannie Mae, was established in 1938 after the Great Depression to create a liquid secondary mortgage market and thereby free the loan originators to originate more loans, primarily by buying Federal Housing Administration (FHA) insured mortgages.[5] In 1968 Fannie Mae was converted into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[6] Fannie Mae was split into the current Fannie Mae and the Government National Mortgage Association (GNMA), colloquially known as Ginnie Mae, to support the FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the United States government.[7] In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market. [7]
In 1977, the Carter Administration and the United States Congress passed and signed the Community Reinvestment Act of 1977, or CRA. The CRA provided that federally insured banks, as a quid pro quo for being covered in the FDIC agreed to "help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations." Essentially what the CRA was intended to do was to end the practice of redlining, where banks were willing to take deposits in certain areas but refuse lending in those same communities. That is to require banks to provide the same services to all who are equally situated and equally qualified in the communities in which they operate. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.
The Act requires that all loans be made with "safe and sound lending practices" and does not require a lowering of underwriting standards in making community based loans. The regulators for the CRA are the four federal bank-regulating agencies, FDIC, Federal Reserve Bank, Office of the Comptroller of Currency, and the Office of Thrift Supervision. The Act required participating banks to keep records and subjects them to periodic CRA examinations. That examination results in a performance rating for the bank or thrift, which must then be disclosed to the public. The enforcement mechanism is extremely light for a federal statute. Basically, if an institution fails to maintain a satisfactory rating, that rating comes into consideration when regulating authorities review applications for new deposit facilities or mergers. The act does not provide for administrative penalties, such as fines and cease and desist orders, or grant authority for the U.S. Department of Justice to sue under the Act. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.
In 1981 Fannie Mae issue its first mortgage passthrough and called it a mortgage-backed security.[8] Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in 1968[9] and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages.[9]
In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.[10] Because of the increased ratio requirements, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans. Shareholders also pressured Fannie Mae to maintain its record profits.[10]
In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.[11]
The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "[12]
In 1999, The New York Times reported that with the corporation's move towards the subprime market "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 1980s."[13] Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk is much larger than is commonly held.[14] Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".[15]
On September 10, 2003, the Bush Administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae. The new agency would have the authority, which now rests with Congress, to set capital-reserve requirements for the company and to determine whether the company is adequately managing the risks of its portfolios. The New York Times reported that the plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac is broken. The Times also reported Democratic opposition to Bush's plan: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." [16] Congress, controlled by Republicans during this period, did not introduce any legislation aimed at bringing this proposal into law until the Federal Housing Enterprise Regulatory Reform Act of 2005, which did not proceed out of committee to the Senate. [17]
On January 26, 2005, the Federal Housing Enterprise Regulatory Reform Act of 2005 (S.190) was first introduced in the Senate by Sen. Chuck Hagel.[18] The Senate legislation was an effort to reform the existing GSE regulatory structure in light of the recent accounting problems and questionable management actions leading to considerable income restatements by the GSE's. After being reported favorably by the Senate's Committee on Banking, Housing, and Urban Affairs in July 2005, the bill was never considered by the full Senate for a vote.[19] Sen. John McCain's decision to become a cosponsor of S.190 almost a year later in 2006 was the last action taken regarding Sen. Hagel's bill in spite of developments since clearing the Senate Committee. Sen. McCain pointed out that Fannie Mae's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management" in his floor statement giving support to S.190.[20][21]
At the same time, the House also introduced similar legislation, the Federal Housing Finance Reform Act of 2005 (H.R. 1461), in the Spring of 2005. The House Financial Services Committee had crafted changes and produced a Committee Report by July 2005 to the legislation. It was passed by the House in October in spite of President Bush's statement of policy opposed to the House version.[22] The legislation met with opposition from both Democrats and Republicans at that point and the Senate never took up the House passed version for consideration after that.[23]
Very interesting pieces of information about the Economic Disaster of 2008. Bush got the blame, but democrats did the dirt.
All paths lead back to actions in the Clinton Administration.
Barney Frank of Massachusetts has had too much involvement in economic policy and has been wrong too many times.
---------------------------
Lawrence Summers
http://en.wikipedia.org/wiki/Lawrence_Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist and as of 2010 Director of the White House National Economic Council for President Barack Obama.[2] Summers is the Charles W. Eliot University Professor at Harvard University's Kennedy School of Government. He is the 1993 recipient of the John Bates Clark Medal for his work in several fields of economics and was Secretary of the Treasury from 1999 to 2001, during the Clinton Administration.
Summers' role in the deregulation of derivatives contracts
On May 7, 1998, the Commodity Futures Trading Commission (CFTC) issued a Concept Release soliciting input from regulators, academics, and practitioners to determine "how best to maintain adequate regulatory safeguards without impairing the ability of the OTC (Over-the-counter) derivatives market to grow and the ability of U.S. entities to remain competitive in the global financial marketplace." [18] On July 30, 1998, then-Deputy Secretary of the Treasury Summers testified before congress that "the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies." Summers, like Greenspan and Rubin who also opposed the concept release, offered no proof that the contracts would not be misused by financial institutions. Instead, Summers stated that "to date there has been no clear evidence of a need for additional regulation of the institutional OTC derivatives market, and we would submit that proponents of such regulation must bear the burden of demonstrating that need." [19] This argument suggests that the default position in the disagreement was that Summers, Greenspan, and Rubin were right, and that anyone (i.e., Brooksley Born) who disagreed with them bore the burden of proving their position. In fact, subsequent events have proven that Summers, Rubin, and Greenspan misjudged the dangers posed by derivatives contracts.
The lack of regulation that allowed A.I.G. to sell hundreds of billions of dollars in credit default swaps on mortgage-backed securities was a direct result of efforts by the Treasury (first under Rubin and then under Summers), the Federal Reserve (under Greenspan), and the Securities and Exchange Commission (under Arthur Levitt) to deregulate the derivatives markets. The first response to the CFTC Concept Release was issued as a joint statement from Rubin, Greenspan, and Levitt who stated that they "have grave concerns about this action and its possible consequences." [20] Levitt and Greenspan have admitted that their views on this issue were mistaken. Levitt told WGBH in Boston that "I could have done much better. I could have made a difference." Greenspan told a congressional hearing that "I found a flaw ... in the model that I perceived is the critical functioning structure that defines how the world works." [21] [22] When George Stephanopoulos asked Summers about the financial crisis in an ABC interview on March 15, 2009, Summers replied that "there are a lot of terrible things that have happened in the last eighteen months, but what's happened at A.I.G. ... the way it was not regulated, the way no one was watching ... is outrageous."
At the 2005 Federal Reserve conference in Jackson Hole, Raghuram Rajan presented a paper called "Has Financial Development Made the World Riskier?" Rajan pointed to a number of potential problems with the financial developments of the past thirty years. [23] The problems that Rajan considers include skewed incentives of managers, herding behavior among traders, investment bankers, and hedge fund operators who suffer withdrawals if they under-perform the market. Rajan also discusses (on pp. 337–40) the problems associated with firms that "goose up returns" by taking risky positions that yield a "positive carry." This is how the infamous Joseph J. Cassano impressed his superiors at A.I.G. for a decade while sowing the destruction of the firm. [24] During the boom years of the housing market, the credit default swap contracts that A.I.G. Financial Products sold provided a stream of premium payments to the company with no expense stream. That's an example of what Rajan calls "goosing up returns" with latent risk. Rajan asks (on page 388) "If firms today implicitly are selling various kinds of default insurance to goose up returns, what happens if catastrophe strikes?" This is a fair question.
The flip side of the trade is equally problematic. Gregory Zuckerman in his book The Greatest Trade Ever about John Paulson's hedge fund recounts the difficulties that Paulson and others had holding on to their bets against the housing market. Even Paulson, whose timing couldn't have been better, spent a great deal of his time persuading investors to persist with the bet against the market. But month after month, millions of dollars were paid out on the credit default swap premia. The investors saw money spent and gone that could have been used to buy assets with rising prices, or at least held safely with a positive yield. As Rajan puts it (p. 338), "it takes a very brave investment manager with infinitely patient investors to fight the trend, even if the trend is a deviation from fundamental value."
Justin Lahart, writing in the Wall Street Journal in January 2009 about the response to Rajan's paper at the conference recounts that "former Treasury Secretary Lawrence Summers, famous among economists for his blistering attacks, told the audience he found 'the basic, slightly lead-eyed premise of [Mr. Rajan's] paper to be largely misguided.'"[25]
In a recent paper (on pages 285-87), Steven Gjerstad and Nobel laureate Vernon L. Smith describe more fully (1) the contribution of derivatives to the flow of mortgage funds that supported the housing bubble, (2) the concerns that Brooksley Born had raised about the dangers inherent in these contracts, (3) Summers' contribution to their deregulation, and (4) how these contracts precipitated the collapse of the financial system in 2007 and 2008. [26]
On April 18, 2010, in an interview on ABC's "This Week" program, Clinton said Summers was wrong in the advice he gave him not to regulate derivatives.[27]
-------------------------------
Fannie Mae
http://en.wikipedia.org/wiki/Fannie+mae
History
The Federal National Mortgage Association, colloquially known as Fannie Mae, was established in 1938 after the Great Depression to create a liquid secondary mortgage market and thereby free the loan originators to originate more loans, primarily by buying Federal Housing Administration (FHA) insured mortgages.[5] In 1968 Fannie Mae was converted into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[6] Fannie Mae was split into the current Fannie Mae and the Government National Mortgage Association (GNMA), colloquially known as Ginnie Mae, to support the FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the United States government.[7] In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market. [7]
In 1977, the Carter Administration and the United States Congress passed and signed the Community Reinvestment Act of 1977, or CRA. The CRA provided that federally insured banks, as a quid pro quo for being covered in the FDIC agreed to "help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations." Essentially what the CRA was intended to do was to end the practice of redlining, where banks were willing to take deposits in certain areas but refuse lending in those same communities. That is to require banks to provide the same services to all who are equally situated and equally qualified in the communities in which they operate. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.
The Act requires that all loans be made with "safe and sound lending practices" and does not require a lowering of underwriting standards in making community based loans. The regulators for the CRA are the four federal bank-regulating agencies, FDIC, Federal Reserve Bank, Office of the Comptroller of Currency, and the Office of Thrift Supervision. The Act required participating banks to keep records and subjects them to periodic CRA examinations. That examination results in a performance rating for the bank or thrift, which must then be disclosed to the public. The enforcement mechanism is extremely light for a federal statute. Basically, if an institution fails to maintain a satisfactory rating, that rating comes into consideration when regulating authorities review applications for new deposit facilities or mergers. The act does not provide for administrative penalties, such as fines and cease and desist orders, or grant authority for the U.S. Department of Justice to sue under the Act. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.
In 1981 Fannie Mae issue its first mortgage passthrough and called it a mortgage-backed security.[8] Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in 1968[9] and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages.[9]
In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.[10] Because of the increased ratio requirements, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans. Shareholders also pressured Fannie Mae to maintain its record profits.[10]
In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.[11]
The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "[12]
In 1999, The New York Times reported that with the corporation's move towards the subprime market "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 1980s."[13] Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk is much larger than is commonly held.[14] Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".[15]
On September 10, 2003, the Bush Administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae. The new agency would have the authority, which now rests with Congress, to set capital-reserve requirements for the company and to determine whether the company is adequately managing the risks of its portfolios. The New York Times reported that the plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac is broken. The Times also reported Democratic opposition to Bush's plan: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." [16] Congress, controlled by Republicans during this period, did not introduce any legislation aimed at bringing this proposal into law until the Federal Housing Enterprise Regulatory Reform Act of 2005, which did not proceed out of committee to the Senate. [17]
On January 26, 2005, the Federal Housing Enterprise Regulatory Reform Act of 2005 (S.190) was first introduced in the Senate by Sen. Chuck Hagel.[18] The Senate legislation was an effort to reform the existing GSE regulatory structure in light of the recent accounting problems and questionable management actions leading to considerable income restatements by the GSE's. After being reported favorably by the Senate's Committee on Banking, Housing, and Urban Affairs in July 2005, the bill was never considered by the full Senate for a vote.[19] Sen. John McCain's decision to become a cosponsor of S.190 almost a year later in 2006 was the last action taken regarding Sen. Hagel's bill in spite of developments since clearing the Senate Committee. Sen. McCain pointed out that Fannie Mae's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management" in his floor statement giving support to S.190.[20][21]
At the same time, the House also introduced similar legislation, the Federal Housing Finance Reform Act of 2005 (H.R. 1461), in the Spring of 2005. The House Financial Services Committee had crafted changes and produced a Committee Report by July 2005 to the legislation. It was passed by the House in October in spite of President Bush's statement of policy opposed to the House version.[22] The legislation met with opposition from both Democrats and Republicans at that point and the Senate never took up the House passed version for consideration after that.[23]
Wednesday, June 9, 2010
Sub-prime lending sparked the financial crisis
Sub-prime lending sparked the financial crisis
In the argument of Capitalism versus Socialism, it is good to see the admission that it was the Socialistic Sub-prime lending that produced the Financial Disaster of 2008.
If the news media had been honest, America would not have Obama as president.
"Canada also has much stricter mortgage sector rules than in the US, where sub-prime lending - offering mortgages to low income or high risk households - sparked the financial crisis."
---------------------------------------
Canada increases interest rates to 0.5%
http://news.bbc.co.uk/2/hi/business/10206931.stm
Bank of Canada The Bank said it remained cautious about the global economy
Canada has become the first member of the G7 group of industrialised nations to raise interest rates since the global financial crisis.
The Bank of Canada has increased its key lending rate by one quarter of a percentage point to 0.5%.
The increase comes after the Canadian economy has grown strongly since the start of the year.
Official figures showed that its economy grew at an annual rate of 6.1% in the first three months of the year.
This followed an annual growth rate of 5% during the last quarter of 2009.
Canada has been shielded from the worst of the global financial crisis, because its banks were much less exposed.
As a result, no major Canadian lender has needed to be bailed out by Canada's government.
Canada also has much stricter mortgage sector rules than in the US, where sub-prime lending - offering mortgages to low income or high risk households - sparked the financial crisis.
Looking ahead, the Canadian central bank said global economic risks remained.
It said it was cautious about "the possibility of renewed weakness in Europe" and an "increasingly uneven" worldwide economic recovery.
The other members of the G7 are the US, UK, France, Germany, Italy and Japan.
In the argument of Capitalism versus Socialism, it is good to see the admission that it was the Socialistic Sub-prime lending that produced the Financial Disaster of 2008.
If the news media had been honest, America would not have Obama as president.
"Canada also has much stricter mortgage sector rules than in the US, where sub-prime lending - offering mortgages to low income or high risk households - sparked the financial crisis."
---------------------------------------
Canada increases interest rates to 0.5%
http://news.bbc.co.uk/2/hi/business/10206931.stm
Bank of Canada The Bank said it remained cautious about the global economy
Canada has become the first member of the G7 group of industrialised nations to raise interest rates since the global financial crisis.
The Bank of Canada has increased its key lending rate by one quarter of a percentage point to 0.5%.
The increase comes after the Canadian economy has grown strongly since the start of the year.
Official figures showed that its economy grew at an annual rate of 6.1% in the first three months of the year.
This followed an annual growth rate of 5% during the last quarter of 2009.
Canada has been shielded from the worst of the global financial crisis, because its banks were much less exposed.
As a result, no major Canadian lender has needed to be bailed out by Canada's government.
Canada also has much stricter mortgage sector rules than in the US, where sub-prime lending - offering mortgages to low income or high risk households - sparked the financial crisis.
Looking ahead, the Canadian central bank said global economic risks remained.
It said it was cautious about "the possibility of renewed weakness in Europe" and an "increasingly uneven" worldwide economic recovery.
The other members of the G7 are the US, UK, France, Germany, Italy and Japan.
Thursday, February 18, 2010
Socially Responsible Criminal Behavior
Socially Responsible Criminal Behavior
Two things have greatly influenced my Christian life. One is science and the other is economics.
Science says there are established rules of how things work, and if you do not follow the rules bad things happen.
Economics says there is Moral Hazard to bailing out/offering welfare, because there is no reason to stop bad behavior if there is a bailout or welfare.
Economics says Socially Responsible Criminal Behavior is still criminal behavior even if it is socially responsible.
A lot of people (mostly democrats) thought they were making very Socially Responsible decisions when they forced banks to make risky sub prime loans through the Community Reinvestment Act.
The banks knew they were violating good banking principles when they made loans to people who did not meet normal qualification requirements.
America is in a major recession/depression because of Socially Responsible Criminal Behavior.
Democrats like to think they are like Robin Hood, who robbed from the rich to give to the poor, but Robin Hood did have to rob the rich. I have always worried about how much really got to the poor with both Robin Hood and democrats.
This illogical thinking can lead to a priest saying it acceptable for a poor person to steal or can lead a person that calls them self a Christian to murder an abortion doctor.
The Bible has an established set of commandments/doctrines of what works for humans, and if you do not follow the commandments/doctrines bad things happen.
Accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible is the Christian Lifestyle that leads to the most environmentally friendly, socially responsible lifestyle that can exist on earth.
Two things have greatly influenced my Christian life. One is science and the other is economics.
Science says there are established rules of how things work, and if you do not follow the rules bad things happen.
Economics says there is Moral Hazard to bailing out/offering welfare, because there is no reason to stop bad behavior if there is a bailout or welfare.
Economics says Socially Responsible Criminal Behavior is still criminal behavior even if it is socially responsible.
A lot of people (mostly democrats) thought they were making very Socially Responsible decisions when they forced banks to make risky sub prime loans through the Community Reinvestment Act.
The banks knew they were violating good banking principles when they made loans to people who did not meet normal qualification requirements.
America is in a major recession/depression because of Socially Responsible Criminal Behavior.
Democrats like to think they are like Robin Hood, who robbed from the rich to give to the poor, but Robin Hood did have to rob the rich. I have always worried about how much really got to the poor with both Robin Hood and democrats.
This illogical thinking can lead to a priest saying it acceptable for a poor person to steal or can lead a person that calls them self a Christian to murder an abortion doctor.
The Bible has an established set of commandments/doctrines of what works for humans, and if you do not follow the commandments/doctrines bad things happen.
Accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible is the Christian Lifestyle that leads to the most environmentally friendly, socially responsible lifestyle that can exist on earth.
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