Quote from KnowOzymandias
I think everyone agrees the economy suffered greatly due to the linkage between home loans, credit default swaps and the financial community.
I would also ask consider that the primary cause for home loan problems were people that should have never been able to get a mortgage much less have several mortgages that they flipped.
How did these unqualified people get the loans that they couldn't make the payments?
Go back to the following as one of the contributing factors:
1) "ACORN showed its colors again in 1991, by taking over the House Banking Committee room for two days to protest efforts to scale back the CRA. Obama represented ACORN in the Buycks-Roberson v. Citibank Fed. Sav. Bank, 1994 suit against redlining. Most significant of all, ACORN was the driving force behind a 1995 regulatory revision pushed through by the Clinton Administration that greatly expanded the CRA (Community Reinvestment Act) and laid the groundwork for the Fannie Mae, Freddie Mac borne financial crisis we now confront.
Barack Obama was the attorney representing ACORN in this effort.
With this new authority, ACORN used its subsidiary, ACORN Housing, to promote subprime loans more aggressively." http://www.democracyforums.com/showthread.php?t=19599
2) the Gramm-Leach-Bliley Act repealing Glass-Steagall was wrong.
This allowed tremendous investment opportunities because Fannie/Freddie under the "full faith and credit" of the USA would guarantee there would be nothing to lose! Securitization of mortgage bundles that funded by margins less then 10%, became lucrative instruments to financial institutions!
3) "When warned about Fannie Mae in (House Financial Services Committee Chairman Barney Frank (D-MA) criticized the President [Bush] warning saying: "these two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis....
The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." (New York Times, 9/11/03)
And then Committee on Banking, Housing and Urban Affairs Chairman Christopher Dodd also ignored the President's warnings and called on him to "immediately reconsider his
ill-advised" position. . Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis... (New York Times, 9/11/03.
So loans made to unqualified people that were guaranteed by Fannie/Freddie would securitized and further leveraged much like commodity contracts created the economic crisis.
The blame is equally shared by Democrats/GOP alike but the fundamental objective was to get unqualified borrowers to become voters in the manner of the Motor Voter scam of the 1990s.
Sunday, December 6, 2009
Friday, August 7, 2009
Economic Disaster of 2008 - August 2009 Update
Economic Disaster of 2008 - August 2009 Update
Anytime there is a problem, both sides are wrong, one for not doing enough to stop the problem and the other for doing too much for supporting the problem.
I believe the Economic Disaster of 2008 was caused mostly by the Community Reinvestment Act, Fannie Mae, Freddie Mac, and the assumption that housing prices would always go up.
http://economicdisasterof2008.blogspot.com/
The Wikipedia discussion is very good, but soft on democrats like Carter and Clinton who did too much to promote lending to unqualified borrowers.
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Democrats always support Socialistic programs that cost the government big money, but with the CRA, the democrats pushed the costs to banks by forcing the banks to make the loans.
Both democrats and Republicans liked the expanding economy produced by the increase in housing prices, so the Republicans did not do enough to stop the lending to unqualified borrowers.
Lending to unqualified borrowers was not a problem so long as housing prices continued to rise since the house could be resold even if the owner defaulted. Most financial institutions and most Americans had their total economic strategy based on increasing housing prices.
I believe the election of 2006 and 2008 killed the economy. Bush was keeping things together, until the democrats and the Atheistic Liberal News Media saw a bad economy as the way to win control of the government. The day the housing prices started down every American was affected.
What disturbs me most is that there does not seem to be a solution except inflation. 20% of mortgages are under water and that is expected to rise to 50% in 2011. That means people cannot sell a house unless they pay the bank $20,000 to $100,000. People are stuck in place with no options. Inflation would cause the value of homes to increase so there would be no out of pocket money, but then people on fixed income would need government assistance.
I believe the democrats have received a problem that they created, thus deserve the painful solutions that will be necessary. I think inflation is inevitable.
I oppose the health care/welfare of democrats, because it is another Socialistic program the will get the government involved in a huge expenses.
Socialism is an ugly path for any country because it lead to a reliance on the government and away from the self reliance of the Christian Religion.
When compared to perfection, Republicans did not look good, but when compared to democrats, Republicans look brilliant. Without the propaganda support of the Atheistic Liberal News Media the democrats would look ridicules.
Anytime there is a problem, both sides are wrong, one for not doing enough to stop the problem and the other for doing too much for supporting the problem.
I believe the Economic Disaster of 2008 was caused mostly by the Community Reinvestment Act, Fannie Mae, Freddie Mac, and the assumption that housing prices would always go up.
http://economicdisasterof2008.blogspot.com/
The Wikipedia discussion is very good, but soft on democrats like Carter and Clinton who did too much to promote lending to unqualified borrowers.
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Democrats always support Socialistic programs that cost the government big money, but with the CRA, the democrats pushed the costs to banks by forcing the banks to make the loans.
Both democrats and Republicans liked the expanding economy produced by the increase in housing prices, so the Republicans did not do enough to stop the lending to unqualified borrowers.
Lending to unqualified borrowers was not a problem so long as housing prices continued to rise since the house could be resold even if the owner defaulted. Most financial institutions and most Americans had their total economic strategy based on increasing housing prices.
I believe the election of 2006 and 2008 killed the economy. Bush was keeping things together, until the democrats and the Atheistic Liberal News Media saw a bad economy as the way to win control of the government. The day the housing prices started down every American was affected.
What disturbs me most is that there does not seem to be a solution except inflation. 20% of mortgages are under water and that is expected to rise to 50% in 2011. That means people cannot sell a house unless they pay the bank $20,000 to $100,000. People are stuck in place with no options. Inflation would cause the value of homes to increase so there would be no out of pocket money, but then people on fixed income would need government assistance.
I believe the democrats have received a problem that they created, thus deserve the painful solutions that will be necessary. I think inflation is inevitable.
I oppose the health care/welfare of democrats, because it is another Socialistic program the will get the government involved in a huge expenses.
Socialism is an ugly path for any country because it lead to a reliance on the government and away from the self reliance of the Christian Religion.
When compared to perfection, Republicans did not look good, but when compared to democrats, Republicans look brilliant. Without the propaganda support of the Atheistic Liberal News Media the democrats would look ridicules.
Monday, June 15, 2009
More information on how the democrats created the Economic Collapse of 2008
More information on how the democrats created the Economic Collapse of 2008
Obama forced Citibank as a lawyer to make risky loans .
ACORN showed its colors again in 1991, by taking over the House Banking Committee room for two days to protest efforts to scale back the CRA. Obama represented ACORN in the Buycks-Roberson v. Citibank Fed. Sav. Bank, 1994 suit against redlining. Most significant of all, ACORN was the driving force behind a 1995 regulatory revision pushed through by the Clinton Administration that greatly expanded the CRA (Community Reinvestment Act) and laid the groundwork for the Fannie Mae, Freddie Mac borne financial crisis we now confront. Barack Obama was the attorney representing ACORN in this effort. With this new authority, ACORN used its subsidiary, ACORN Housing, to promote subprime loans more aggressively.
http://www.democracyforums.com/showthread.php?t=19599
Writer reveals truth behind boom, bust By WALTER WILLIAMS [by the way he's black!!!]
Wednesday, June 3, 2009
The root of the problem lies in Washington. The Community Reinvestment Act of 1977, later given teeth during the Bush and Clinton administrations, forced financial institutions to make risky mortgage loans they otherwise would not have made. President Bill Clinton's attorney general, Janet Reno, threatened legal action against lenders whose racial statistics raised her suspicions.
There were many other warnings of pending collapse, but Congress and the White House, in their push for politically popular "affordable housing," ignored them.
Congressman Barney Frank, who is now chairman of the House Committee on Financial Services, said critics "exaggerate a threat of safety" and "conjure up the possibility of serious financial losses to the Treasury, which I do not see."
Chairman Chris Dodd, of the Senate Banking Committee, called Fannie Mae and Freddie Mac
"one of the great success stories of all time" and urged "caution" in restricting their activities, out of fear of
"doing great damage to what has been one of the great engines of economic success in the last 30 or 40 years."
http://www.columbiatribune.com/news/2009/jun/03/writer-reveals-truth-behind-boom-bust/
b) mortgages created, packed, sold as Credit default swaps and again backed by "full faith and credit of US Govt!
Why wouldn't institutions buy them!
Yet two leading congressmen said nothing is wrong! The Feds are backing the CDSs. How could the buyers lose?
c) totally thwarted by Barney Franks, Chris Dodds, Franklin Raines CEO of $90 million bonuses fame,
encouraged more bogus loans because in the words of Frank/Dodds
1) "these two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis....
The more people exaggerate these problems, the more pressure there is on these companies,
the less we will see in terms of affordable housing." (New York Times, 9/11/03)
2) And then Dodd said this ...Senate Committee on Banking, Housing and Urban Affairs Chairman Christopher Dodd
also ignored the President's warnings and called on him to "immediately reconsider his ill-advised" position. .
Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis.... (New York Times, 9/11/03.
Obama forced Citibank as a lawyer to make risky loans .
ACORN showed its colors again in 1991, by taking over the House Banking Committee room for two days to protest efforts to scale back the CRA. Obama represented ACORN in the Buycks-Roberson v. Citibank Fed. Sav. Bank, 1994 suit against redlining. Most significant of all, ACORN was the driving force behind a 1995 regulatory revision pushed through by the Clinton Administration that greatly expanded the CRA (Community Reinvestment Act) and laid the groundwork for the Fannie Mae, Freddie Mac borne financial crisis we now confront. Barack Obama was the attorney representing ACORN in this effort. With this new authority, ACORN used its subsidiary, ACORN Housing, to promote subprime loans more aggressively.
http://www.democracyforums.com/showthread.php?t=19599
Writer reveals truth behind boom, bust By WALTER WILLIAMS [by the way he's black!!!]
Wednesday, June 3, 2009
The root of the problem lies in Washington. The Community Reinvestment Act of 1977, later given teeth during the Bush and Clinton administrations, forced financial institutions to make risky mortgage loans they otherwise would not have made. President Bill Clinton's attorney general, Janet Reno, threatened legal action against lenders whose racial statistics raised her suspicions.
There were many other warnings of pending collapse, but Congress and the White House, in their push for politically popular "affordable housing," ignored them.
Congressman Barney Frank, who is now chairman of the House Committee on Financial Services, said critics "exaggerate a threat of safety" and "conjure up the possibility of serious financial losses to the Treasury, which I do not see."
Chairman Chris Dodd, of the Senate Banking Committee, called Fannie Mae and Freddie Mac
"one of the great success stories of all time" and urged "caution" in restricting their activities, out of fear of
"doing great damage to what has been one of the great engines of economic success in the last 30 or 40 years."
http://www.columbiatribune.com/news/2009/jun/03/writer-reveals-truth-behind-boom-bust/
b) mortgages created, packed, sold as Credit default swaps and again backed by "full faith and credit of US Govt!
Why wouldn't institutions buy them!
Yet two leading congressmen said nothing is wrong! The Feds are backing the CDSs. How could the buyers lose?
c) totally thwarted by Barney Franks, Chris Dodds, Franklin Raines CEO of $90 million bonuses fame,
encouraged more bogus loans because in the words of Frank/Dodds
1) "these two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis....
The more people exaggerate these problems, the more pressure there is on these companies,
the less we will see in terms of affordable housing." (New York Times, 9/11/03)
2) And then Dodd said this ...Senate Committee on Banking, Housing and Urban Affairs Chairman Christopher Dodd
also ignored the President's warnings and called on him to "immediately reconsider his ill-advised" position. .
Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis.... (New York Times, 9/11/03.
Monday, May 18, 2009
Housing Bubble = CRA
Housing Bubble = CRA
Although not stated directly, the legislation that created the housing bubble was the Community Reinvestment Act that was black equality legislation intended to assure the vote of blacks for democrats.
Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM
http://www.newsmax.com/newsfront/sowell_housing_crisis/2009/05/17/215234.html
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor's Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Although not stated directly, the legislation that created the housing bubble was the Community Reinvestment Act that was black equality legislation intended to assure the vote of blacks for democrats.
Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM
http://www.newsmax.com/newsfront/sowell_housing_crisis/2009/05/17/215234.html
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor's Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Saturday, March 28, 2009
Scape Goating the AIG Bonuses
Scape Goating the AIG Bonuses
The Obama Administration has a short term victory with the AIG Bonus scape goating, but now it seems to have backfired.
People now know the Obama Administration, particularly Dodd and Geikner knew all about the bonuses, long before they were to be paid.
The Obama Administration needs a scape goat because they need to draw attention away from the CRA, a socialistic program that was started by democrats as part of the many failed black equality programs that democrats have started.
The banks, Fannie Mae, Freedie Mac, financial institutions and insurance companies were over extended with too much credit on the books, the same as most Americas were over extended on credit card debt, but nothing would have happened if there had not been defaults on the sub prime mortgages that were created by the Community Reinvestment Act.
The Obama Administration needs a scape goat to draw attention away from black equality programs because the health care (Universal Healthcare)/welfare programs that are being advocated are just more black equality programs that will also fail.
Now I ask you which is worse, the few at AIG that stole a lot, or the many sub prime loans that stole a little each.
The Obama Administration has a short term victory with the AIG Bonus scape goating, but now it seems to have backfired.
People now know the Obama Administration, particularly Dodd and Geikner knew all about the bonuses, long before they were to be paid.
The Obama Administration needs a scape goat because they need to draw attention away from the CRA, a socialistic program that was started by democrats as part of the many failed black equality programs that democrats have started.
The banks, Fannie Mae, Freedie Mac, financial institutions and insurance companies were over extended with too much credit on the books, the same as most Americas were over extended on credit card debt, but nothing would have happened if there had not been defaults on the sub prime mortgages that were created by the Community Reinvestment Act.
The Obama Administration needs a scape goat to draw attention away from black equality programs because the health care (Universal Healthcare)/welfare programs that are being advocated are just more black equality programs that will also fail.
Now I ask you which is worse, the few at AIG that stole a lot, or the many sub prime loans that stole a little each.
Wednesday, March 18, 2009
CRA Caused the Financial Disaster of 2008
CRA Caused the Financial Disaster of 2008
Some say the CRA was not at the heart of the Financial Disaster of 2008, but the following shows what is being done even now.
-----------------------------------
FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious
Tuesday, March 17, 2009
http://www.foxnews.com/story/0,2933,509584,00.html
A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.
The secret behind East Bridgewater Savings Bank's accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli.
"We're paranoid about credit quality," he told the Boston Business Journal.
That paranoia has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didn't even need to set aside in money in 2008 for anticipated loan losses.
But rather than reward Petrucelli's tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported.
The problem, according to FDIC data, was that from late 2003 through mid-2008, East Bridgewater Savings made an average of 28 cents in loans for every dollar in deposit — a sharp contrast to the 90 percent average loan-to-deposit ratio among similar banks, the paper reported.
"There are no apparent financial or legal impediments that would limit the bank's ability to help meet the credit needs of its assessment area," the FDIC wrote in the CRA evaluation.
The agency also faulted the bank, which does not have a Web site, for not promoting its loan products enough, the Journal reported.
Considering his bank is doing well in tanking industry and even the FDIC's deposit insurance fund is in trouble after paying for an upswing in bank failures, Petrucelli told the Boston Business Journal that the negative rating caught him by surprise.
East Bridgewater Savings ended 2008 with $135 million in assets, deposits of $84 million, $87,000 in profit, and a Tier 1 risk-based capital ratio of 31.6 percent — more than three times higher than many community banks in Massachusetts, the Journal reported.
Its net loans and leases equaled 21 percent of assets, compared with 72 percent among 385 similar banks across the country.
Some say the CRA was not at the heart of the Financial Disaster of 2008, but the following shows what is being done even now.
-----------------------------------
FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious
Tuesday, March 17, 2009
http://www.foxnews.com/story/0,2933,509584,00.html
A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.
The secret behind East Bridgewater Savings Bank's accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli.
"We're paranoid about credit quality," he told the Boston Business Journal.
That paranoia has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didn't even need to set aside in money in 2008 for anticipated loan losses.
But rather than reward Petrucelli's tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported.
The problem, according to FDIC data, was that from late 2003 through mid-2008, East Bridgewater Savings made an average of 28 cents in loans for every dollar in deposit — a sharp contrast to the 90 percent average loan-to-deposit ratio among similar banks, the paper reported.
"There are no apparent financial or legal impediments that would limit the bank's ability to help meet the credit needs of its assessment area," the FDIC wrote in the CRA evaluation.
The agency also faulted the bank, which does not have a Web site, for not promoting its loan products enough, the Journal reported.
Considering his bank is doing well in tanking industry and even the FDIC's deposit insurance fund is in trouble after paying for an upswing in bank failures, Petrucelli told the Boston Business Journal that the negative rating caught him by surprise.
East Bridgewater Savings ended 2008 with $135 million in assets, deposits of $84 million, $87,000 in profit, and a Tier 1 risk-based capital ratio of 31.6 percent — more than three times higher than many community banks in Massachusetts, the Journal reported.
Its net loans and leases equaled 21 percent of assets, compared with 72 percent among 385 similar banks across the country.
Tuesday, March 17, 2009
Credit Rating Effect on Financial Disaster of 2008
Credit Rating Effect on Financial Disaster of 2008
The following is one of the better articles I have seen and brings in the effect of the credit rating agencies. Why the credit rating agencies ever allowed the sub prime mortgages to be given a AAA rating when they were mixed with other mortgages is not explained.
With all the other government involvement, one wonders if the government forced the credit rating agencies to give the mixed mortgages a AAA rating.
------------------------------------
Why Did Subprime Loans Become Such a Big Deal?
Published by Abraham Park, PhD, Practitioner Faculty of Finance on May 5, 2008
http://gbr.pepperdine.edu/blog/index.php/2008/05/05/29/
Abraham Park, PhD Intelligent people, including my wife, have been asking me questions about the subprime mortgage crisis. The point that seems to stump them is why a relatively small percentage of subprime mortgage defaults has led to a spiraling national credit crisis, how it happened, and where do we go from here. They were good questions, and if you are wondering the same thing, read on…
So what's the deal with the subprime mortgage meltdown?
Well, imagine that the markets involved are analogous to a house with three stories. Each of the floors represent an industry related to the housing market and each of the upper stories are dependent on the one right below it.
The first floor represents the primary mortgage market (homeowners and their banks or mortgage lenders)
The second level represents the secondary mortgage market (where government-enabled agencies and private lenders by bundled bank mortgages)
The third represents the credit derivatives market (where securities created in the secondary mortgage market are pooled again with other debts and with various risk preferences)
The primary mortgage market is huge, but the second and third levels are just as huge. It makes for a pretty big meltdown when it all starts to unravel.
When did they start lowering standards for homebuyers?
A lot of changes happened about twenty years ago, when the Tax Reform Act of 1986 introduced interest deductions on mortgages for homes, making mortgage debt cheaper than consumer debt for many homeowners. In addition, there was a concerted effort in economic policy to increase the share of homeownership in America. As a result, since 1986, the housing market has experienced 20 years of continued price increases. Even through the recession of 2001, while labor and stock markets weakened, the housing market continued to thrive with high volumes and steady price increases.
And along with the housing boom came the growth of the mortgage lending industry. Subprime lending was made possible because of laws such as the Depository Institutions Deregulation and Monetary Control Act (1980) and the Alternative Mortgage Transaction Parity Act (1982), which gave lenders the ability to charge high rates and fees, as well as variable interest rates and balloon payments.
However, it wasn't until 1994, when an increase in interest rates caused a drop in prime mortgages, that brokers and mortgage companies turned to the subprime market to maintain the volume. During these times, subprime mortgages were relatively new and the long-term performances of these loans were unknown. In 1995, the size of the subprime loan market was estimated around $65 billion, but by 2007, subprime mortgages accounted for $1.3 trillion out of a total of $10 trillion in outstanding mortgages.
But how could so many lenders originate such huge volumes of mortgages? Where do they get their money?
From the secondary market, or the second floor of our imaginary house analogy. Mortgages, if you think of them as a consumer good, can actually be bundled and sold. And the government (and some private companies) bought them. After the savings and loan crisis of the 1980s, with the infamous "maturity mismatch" problem of lenders using short-term deposits to fund long-term mortgages, mortgages became tougher to acquire. So the government enabled agencies like Ginnie Mae, Fannie Mae, and Freddie Mac, to buy bank mortgages in the secondary mortgage market, which gave mortgage lenders a way to replenish their funds so that they could in turn originate more mortgages.
These government agencies (and some private companies also) then turned around and issued securities based on these mortgage debts as collaterals. And global investors, who wanted to participate in the U.S. housing market, bought a lot of these types of securities. And since 1980, the volume of government-sponsored mortgage-backed securities has risen from $200 billion to over $4 trillion. In addition, private mortgage insurers and mortgage pools (which include nonconforming loans) account for approximately $2 trillion.
The secondary market was an incentive, then, for banks to issue more loans?
Precisely. With the securitization of loans, banks and mortgage lenders effectively became mortgage originating and servicing business, which meant that mortgage lenders profits were based on the volume of mortgage originations. Since there was a huge growing secondary market willing to buy repackaged mortgage products that were ultimately based on these mortgages, the effective size of the mortgage market became much bigger than the size of the mortgage originations.
Then why would the secondary market buy the subprime loans? Don't they have standards?
From the mid 1990s, the growth in securitization (10% of mortgages securitized in 1980 while 60% securitized now) led to dramatic growth in subprime lending as well, and by 2007, 75% of all subprime mortgages were securitized.
Now, the reason why subprime loans were able to be repackaged and sold in the secondary market , was entirely due to the existence of credit ratings agencies, such as Moody's and Standard & Poors. Although they provide no guarantees, there is an overwhelming and even reckless reliance by investors on these agencies to give accurate ratings.
Rating agencies measure the credit risk, which is also referred to as default risk. Professional credit risk managers spend theirs careers developing credit risk models, but most models are based on two fundamental concepts: default probability and recovery rate. Together, the default probability and recovery rate give a good measurement of a debt's quality and are often referred as credit spread. Combining these factors with a measurement of how much the creditor would lose if the counterparty defaulted (credit exposure) on a given debt, companies can calculate the expected loss of any given obligation. Now when the credit rating agency gives a stamp of approval, the tendency is for investors to not look at the quality of the underlying mortgages.
If we go back to our 3-story house, the credit ratings agencies are like the columns that are holding up the building; the foundation on which the columns are grounded are the assumption, based on historical figures, that house prices will continue to rise as they have since 1986. So when the house prices fell….
Then the second floor came crashing down? What a mess!
But the second floor is nothing compared to the third floor. The third floor represents the credit derivatives market, in which securities created in the secondary mortgage market are in turn pooled again with other debts and sold as slices (known as tranches) with various risk preferences. Banks, securities houses, hedge funds, and insurance companies buy these credit derivative instruments, called structured finance products.
Everyone benefited from credit derivatives:
1. Banks could transfer the credit risk of loans through these derivative products, while keeping the loan on its books
2. Investors could enhance the credit risk of obligations by isolating the credit risk, pricing it, and transferring it to other investors; and
3. Investors could diversify their risk with credit derivatives such as collateralized debt obligations (CDOs) or mortgages obligations (CMOs), which bundled together different types of credit risk and sold them as a portfolio product.
The frightening thing is that this third floor, though a relatively new development, is HUGE.
The credit derivatives market has had explosive growth only since the late 1990s. From $170 billion in 1997, currently the global credit derivatives market stands at estimated $20 trillion, surpassing the equity derivatives market and the corporate bond market. The CDO market alone is roughly $3 trillion—CDOs are useful because they can be used to dispose of high risk loans. Japanese banks used CDOs to clear up their loan books in the 1990s, as did Germany's Dresdner Bank in 2003.
But who is holding this market together? You guessed it – the credit rating agency. It's practically impossible for the investors in this market to understand or know the credit risk of the underlying securities when the underlying loans are pooled together from many different sources and are repackaged multiple times. So everyone just trusted the credit rating agencies to assign the appropriate risk rating.
How could they put so much trust in the rating agencies?
That is the biggest problem. Investors are interested in high returns, but only if they can trust the risk rating. Much of the global money has shifted away from the US stock market and into the real estate market since 2000 when the internet bubble burst. In the finance world, it's all about risk-adjusted returns, and people don't, or can't, invest if risk can't be accurately assessed.
So that is why the subprime debacle is a deeper problem than just these mortgages. It has revealed that the risk-pricing system by credit agencies is deeply suspect, which in turn has brought into suspicion not only subprime evaluations, but all other risk-based evaluations in the financial market.
Going back to the 3-story house analogy, imagine if the investors in the third floor realized that the columns have cracks in them (thus, risk of their investments were much higher than once believed). Not only would they want to shut down the third floor, they would want to exercise buyback provisions that permit investors to sell back loans that go bad within a specified period of time.
That's how you get a case like Bear Sterns. Once everyone realizes that your underlying collateral is worth much less than expected because of the adjustments in credit ratings, the issuer is stuck with bad mortgages and the huge second and third floor activities suddenly freeze.
So what happens next? Are we going to buy a house this summer or not?
The problem was caused by credit rating agencies basing the credit risk of mortgages on the faulty assumption that the housing prices would continue to go up. So when house prices fell against expectations, all those industries we talked about suddenly found themselves on shaky foundations. Consequently, the secondary mortgage market participants are reducing mortgage purchases from the mortgage lenders, which means the mortgage lenders are stuck with bad mortgages. With liquidity dried up, mortgage lenders now have to tighten borrowing standards, which in turn causes house prices to fall even further. Potential disaster can be alleviated if the house prices start to go back up soon again. But I wouldn't expect the house prices to turn up again any time soon, even though interest rates remain low.
The first order of priority, before expecting the house prices to rise, would be for the government and financial market participants to reevaluate the credit rating agencies, credit risk pricing models, and structured finance products in general. There is also the whole potential legal mess involving the mortgage insurers. It's going to be a long road back.
As to buying a house, let's wait.
Related in the Graziadio Business Report
Will the Sub-Prime Meltdown Burst the Housing Bubble? by Peggy J. Crawford, PhD, and Terry Young, PhD
Is the Real Estate Market a House of Cards? by Peggy J. Crawford, PhD, and Terry Young, PhD
The Book Corner Recommends: The Foreclosures.Com Guide to Making Huge Profits Investing in Preforeclosures without Selling Your Soul by Michael Kinsman, CPA, PhD
The following is one of the better articles I have seen and brings in the effect of the credit rating agencies. Why the credit rating agencies ever allowed the sub prime mortgages to be given a AAA rating when they were mixed with other mortgages is not explained.
With all the other government involvement, one wonders if the government forced the credit rating agencies to give the mixed mortgages a AAA rating.
------------------------------------
Why Did Subprime Loans Become Such a Big Deal?
Published by Abraham Park, PhD, Practitioner Faculty of Finance on May 5, 2008
http://gbr.pepperdine.edu/blog/index.php/2008/05/05/29/
Abraham Park, PhD Intelligent people, including my wife, have been asking me questions about the subprime mortgage crisis. The point that seems to stump them is why a relatively small percentage of subprime mortgage defaults has led to a spiraling national credit crisis, how it happened, and where do we go from here. They were good questions, and if you are wondering the same thing, read on…
So what's the deal with the subprime mortgage meltdown?
Well, imagine that the markets involved are analogous to a house with three stories. Each of the floors represent an industry related to the housing market and each of the upper stories are dependent on the one right below it.
The first floor represents the primary mortgage market (homeowners and their banks or mortgage lenders)
The second level represents the secondary mortgage market (where government-enabled agencies and private lenders by bundled bank mortgages)
The third represents the credit derivatives market (where securities created in the secondary mortgage market are pooled again with other debts and with various risk preferences)
The primary mortgage market is huge, but the second and third levels are just as huge. It makes for a pretty big meltdown when it all starts to unravel.
When did they start lowering standards for homebuyers?
A lot of changes happened about twenty years ago, when the Tax Reform Act of 1986 introduced interest deductions on mortgages for homes, making mortgage debt cheaper than consumer debt for many homeowners. In addition, there was a concerted effort in economic policy to increase the share of homeownership in America. As a result, since 1986, the housing market has experienced 20 years of continued price increases. Even through the recession of 2001, while labor and stock markets weakened, the housing market continued to thrive with high volumes and steady price increases.
And along with the housing boom came the growth of the mortgage lending industry. Subprime lending was made possible because of laws such as the Depository Institutions Deregulation and Monetary Control Act (1980) and the Alternative Mortgage Transaction Parity Act (1982), which gave lenders the ability to charge high rates and fees, as well as variable interest rates and balloon payments.
However, it wasn't until 1994, when an increase in interest rates caused a drop in prime mortgages, that brokers and mortgage companies turned to the subprime market to maintain the volume. During these times, subprime mortgages were relatively new and the long-term performances of these loans were unknown. In 1995, the size of the subprime loan market was estimated around $65 billion, but by 2007, subprime mortgages accounted for $1.3 trillion out of a total of $10 trillion in outstanding mortgages.
But how could so many lenders originate such huge volumes of mortgages? Where do they get their money?
From the secondary market, or the second floor of our imaginary house analogy. Mortgages, if you think of them as a consumer good, can actually be bundled and sold. And the government (and some private companies) bought them. After the savings and loan crisis of the 1980s, with the infamous "maturity mismatch" problem of lenders using short-term deposits to fund long-term mortgages, mortgages became tougher to acquire. So the government enabled agencies like Ginnie Mae, Fannie Mae, and Freddie Mac, to buy bank mortgages in the secondary mortgage market, which gave mortgage lenders a way to replenish their funds so that they could in turn originate more mortgages.
These government agencies (and some private companies also) then turned around and issued securities based on these mortgage debts as collaterals. And global investors, who wanted to participate in the U.S. housing market, bought a lot of these types of securities. And since 1980, the volume of government-sponsored mortgage-backed securities has risen from $200 billion to over $4 trillion. In addition, private mortgage insurers and mortgage pools (which include nonconforming loans) account for approximately $2 trillion.
The secondary market was an incentive, then, for banks to issue more loans?
Precisely. With the securitization of loans, banks and mortgage lenders effectively became mortgage originating and servicing business, which meant that mortgage lenders profits were based on the volume of mortgage originations. Since there was a huge growing secondary market willing to buy repackaged mortgage products that were ultimately based on these mortgages, the effective size of the mortgage market became much bigger than the size of the mortgage originations.
Then why would the secondary market buy the subprime loans? Don't they have standards?
From the mid 1990s, the growth in securitization (10% of mortgages securitized in 1980 while 60% securitized now) led to dramatic growth in subprime lending as well, and by 2007, 75% of all subprime mortgages were securitized.
Now, the reason why subprime loans were able to be repackaged and sold in the secondary market , was entirely due to the existence of credit ratings agencies, such as Moody's and Standard & Poors. Although they provide no guarantees, there is an overwhelming and even reckless reliance by investors on these agencies to give accurate ratings.
Rating agencies measure the credit risk, which is also referred to as default risk. Professional credit risk managers spend theirs careers developing credit risk models, but most models are based on two fundamental concepts: default probability and recovery rate. Together, the default probability and recovery rate give a good measurement of a debt's quality and are often referred as credit spread. Combining these factors with a measurement of how much the creditor would lose if the counterparty defaulted (credit exposure) on a given debt, companies can calculate the expected loss of any given obligation. Now when the credit rating agency gives a stamp of approval, the tendency is for investors to not look at the quality of the underlying mortgages.
If we go back to our 3-story house, the credit ratings agencies are like the columns that are holding up the building; the foundation on which the columns are grounded are the assumption, based on historical figures, that house prices will continue to rise as they have since 1986. So when the house prices fell….
Then the second floor came crashing down? What a mess!
But the second floor is nothing compared to the third floor. The third floor represents the credit derivatives market, in which securities created in the secondary mortgage market are in turn pooled again with other debts and sold as slices (known as tranches) with various risk preferences. Banks, securities houses, hedge funds, and insurance companies buy these credit derivative instruments, called structured finance products.
Everyone benefited from credit derivatives:
1. Banks could transfer the credit risk of loans through these derivative products, while keeping the loan on its books
2. Investors could enhance the credit risk of obligations by isolating the credit risk, pricing it, and transferring it to other investors; and
3. Investors could diversify their risk with credit derivatives such as collateralized debt obligations (CDOs) or mortgages obligations (CMOs), which bundled together different types of credit risk and sold them as a portfolio product.
The frightening thing is that this third floor, though a relatively new development, is HUGE.
The credit derivatives market has had explosive growth only since the late 1990s. From $170 billion in 1997, currently the global credit derivatives market stands at estimated $20 trillion, surpassing the equity derivatives market and the corporate bond market. The CDO market alone is roughly $3 trillion—CDOs are useful because they can be used to dispose of high risk loans. Japanese banks used CDOs to clear up their loan books in the 1990s, as did Germany's Dresdner Bank in 2003.
But who is holding this market together? You guessed it – the credit rating agency. It's practically impossible for the investors in this market to understand or know the credit risk of the underlying securities when the underlying loans are pooled together from many different sources and are repackaged multiple times. So everyone just trusted the credit rating agencies to assign the appropriate risk rating.
How could they put so much trust in the rating agencies?
That is the biggest problem. Investors are interested in high returns, but only if they can trust the risk rating. Much of the global money has shifted away from the US stock market and into the real estate market since 2000 when the internet bubble burst. In the finance world, it's all about risk-adjusted returns, and people don't, or can't, invest if risk can't be accurately assessed.
So that is why the subprime debacle is a deeper problem than just these mortgages. It has revealed that the risk-pricing system by credit agencies is deeply suspect, which in turn has brought into suspicion not only subprime evaluations, but all other risk-based evaluations in the financial market.
Going back to the 3-story house analogy, imagine if the investors in the third floor realized that the columns have cracks in them (thus, risk of their investments were much higher than once believed). Not only would they want to shut down the third floor, they would want to exercise buyback provisions that permit investors to sell back loans that go bad within a specified period of time.
That's how you get a case like Bear Sterns. Once everyone realizes that your underlying collateral is worth much less than expected because of the adjustments in credit ratings, the issuer is stuck with bad mortgages and the huge second and third floor activities suddenly freeze.
So what happens next? Are we going to buy a house this summer or not?
The problem was caused by credit rating agencies basing the credit risk of mortgages on the faulty assumption that the housing prices would continue to go up. So when house prices fell against expectations, all those industries we talked about suddenly found themselves on shaky foundations. Consequently, the secondary mortgage market participants are reducing mortgage purchases from the mortgage lenders, which means the mortgage lenders are stuck with bad mortgages. With liquidity dried up, mortgage lenders now have to tighten borrowing standards, which in turn causes house prices to fall even further. Potential disaster can be alleviated if the house prices start to go back up soon again. But I wouldn't expect the house prices to turn up again any time soon, even though interest rates remain low.
The first order of priority, before expecting the house prices to rise, would be for the government and financial market participants to reevaluate the credit rating agencies, credit risk pricing models, and structured finance products in general. There is also the whole potential legal mess involving the mortgage insurers. It's going to be a long road back.
As to buying a house, let's wait.
Related in the Graziadio Business Report
Will the Sub-Prime Meltdown Burst the Housing Bubble? by Peggy J. Crawford, PhD, and Terry Young, PhD
Is the Real Estate Market a House of Cards? by Peggy J. Crawford, PhD, and Terry Young, PhD
The Book Corner Recommends: The Foreclosures.Com Guide to Making Huge Profits Investing in Preforeclosures without Selling Your Soul by Michael Kinsman, CPA, PhD
Thursday, March 12, 2009
Mortgage Loan Standards
Mortgage Loan Standards
The following article shows how reduced mortgage loan standards produced the sub prime loan problem. This all started with the CRA which was a socialistic program that was another attempt in a long line of programs to create black equality in America.
The reduced loan standards produced by Fannie and Freddie got risky loans into the financial system. The risky loans were not held by Fannie and Freddie but were bundled with good loans and sold all over the world. The people buying the bundled loans thought they were buying good quality securities because the securities had been given an excellent securities rating.
When the increase in home prices stopped, sub prime loan payments stopped, and the value of the securities became questionable. No new securities were sold. Everything froze in place and the person holding the securities was in trouble. The security could not be sold and part of the loan payment was not being made.
Since credit default swap deals had been cut the insurance companies were now on the hook to pay for the decrease in value of the securities.
The securities market is still frozen because no one knows the value of the securities because part the security is good and part bad.
Some people are willing to pay a very very low price for the security, but the holders of the security want a value equal to the loan payments on the good loans.
February 18, 2009
Feds Re-Impose Loan Standards They Helped Undermine
By Steven Malanga
http://www.realclearmarkets.com/articles/2009/02/feds_reimpose_loan_standards_t.html
When President Obama announces Washington's new plan to help troubled mortgage-holders today, the betting is that the program will include a loan-modification effort that reduces the size of a besieged homeowner's debt. One goal would be to cut the size of loans and perhaps also their interest rate so that a mortgage holder's monthly payment would equal no more than 31 percent of his pre-tax income. Fannie Mae and Freddie Mac have already been experimenting with an income-to-payment ratio of 38 percent in their loan modification efforts, but Washington wants to go further, indeed probably needs to go further, if it is to stem the tide of defaults.
There is a great irony that Washington will now lead the way in imposing new, stricter standards, including a tougher income-to-payment ratio, because it was Washington, prodded by affordable housing advocates, which pushed mortgage lenders to dilute their traditional underwriting values in the first place. Federal regulators attacked those established standards as being "unintentionally biased" against low and moderate income borrowers and used a variety of laws and regulatory bodies to push often resistant lenders into programs based on these lower standards. The government and those who backed its actions assured lenders these lower standards were safer than they thought, even though there was little research to support that contention. Now that a huge chunk of the market based on these debased standards has melted down, the government is going full circle.
The movement to water down underwriting standards grew out of claims of some housing advocates and elected officials that mortgage lenders were ‘redlining,' or avoiding, certain urban neighborhoods, and that these credit-starved areas were decaying from a lack of capital. When bankers countered that they received few credit-worthy applications based on their traditional underwriting criteria in many of these neighborhoods, regulators and housing advocates began to argue that there must be something wrong with the lending criteria, which needed to change.
One group that led the way was the Association of Community Organizations for Reform Now, or ACORN, which began protesting bank mergers and expansion requests in the mid-1980s under the Community Reinvestment Act. In 1986, ACORN threatened to oppose an acquisition by a Southern bank, Louisiana Bancshares, until the financial institution agreed to new "flexible credit and underwriting standards" for low-income borrowers, including agreeing to take into account on mortgage applications such income as public assistance and food stamps. ACORN also led a coalition of community groups that demanded industry-wide changes in lending standards for urban residents, including watering down minimum down-payment requirements. The community groups also attacked Fannie Mae as part of the problem with bank lending in certain areas because the giant, quasi government agency's underwriters were "strictly by-the-book interpreters" of standards who turned down purchases of unconventional loans, which sent a message to banks that these loans were unsafe.
Under pressure from Washington, Fannie Mae and Freddie Mac agreed to begin purchasing mortgages under new, looser guidelines. Freddie Mac, for instance, made 28 changes to its underwriting standards, including approving low-income buyers without credit histories or with bad credit as long as they were current on rent and utilities payments--even though research had concluded that such buyers are more likely to default. Freddie Mac also said it would count income from seasonal jobs and public assistance toward income minimums, although such income (particularly seasonal work) was by definition not steady.
The giant agencies began several experimental lending programs based on watered-down standards. Freddie Mac began a program with Sears Mortgage Corporation to make mortgages to borrowers with an income-to-monthly payment ratio of 50 percent, at a time when most private mortgage companies aimed for a 28-to-33 percent ratio. The program also allowed borrowers with bad credit to win mortgage approval if they took credit counseling classes administered by local nonprofits like ACORN, although research would show that credit counseling classes have little impact on default rates.
These efforts gained the endorsement of some of our most authoritative federal institutions. Shortly after producing a controversial study in 1992 which asserted there was some evidence that lenders were intentionally avoiding minority neighborhoods, the Federal Reserve Bank of Boston produced a "guide" to equal opportunity lending in which it told mortgage makers that conventional underwriting standards were "unintentionally biased" because they didn't take into account "the economic culture of urban, lower-income and nontraditional customers." Among other things, the Boston Fed told lenders they should consider junking the industry's traditional "obligation ratios," including the 28 percent income-to-payments ratio. The Fed noted in its guide that the "secondary market," that is, those that purchased mortgages from banks, was willing to buy loans with higher ratios, thereby implying that others thought these loans a good bet, too. But at this point the secondary market for such loans consisted of Fannie Mae and Freddie Mac, which had both been cajoled into buying them by Washington.
Under pressure, these institutions accepted these new standards even though there were plenty of early warning signs as well as several decades worth of research which suggested that when banks departed too far from traditional underwriting criteria delinquencies and foreclosures rose sharply. For instance, a minority loan program put together by banks in Atlanta after a newspaper series accused local financial institutions of redlining quickly ran into predictable trouble. The program allowed loans with payments that were up to 50 percent of an applicant's monthly income, and within a year, 10 percent of the loans were delinquent. Even worse, those who took out the loans fell deeper into other kinds of debt, defaulted on credit card payments and had goods they'd purchased on credit repossessed.
Meanwhile, a Freddie Mac program called Affordable Gold, which purchased loans from banks under looser underwriting standards, including loans which allowed a borrower to make a down payment with funds contributed from a third party like a government assistance program or a nonprofit, showed sharply higher default rates, up to four times higher than traditional underwriting standards.
Despite such evidence, over time these programs moved from the experimental stage to a large part of the marketplace because politicians in both parties made expanding the number of home owners in America a high priority, and the only way to keep doing that was to lend to people with increasingly riskier credit. Fannie Mae announced a $1 trillion commitment to purchase affordable housing loans in 1992, then in 1999 under pressure from the Clinton administration announced a new program to buy loans made to "borrowers with slightly impaired credit." In 2005 Fannie Mae and Freddie Mac committed to another $1 trillion in affordable housing lending.
And as their loan pools grew, their credit standards deteriorated. In a recent Forbes article Peter Wallison of the American Enterprise Institute and Edward Pinto, former chief credit officer of Fannie Mae, point out that by 2001, 18 percent of Fannie Mae's portfolio consisted of loans to people with credit scores below 680—the traditional definition of a loan to someone with riskier credit, who is also someone more likely to default.
Of course, with two huge federal agencies willing to purchase such loans, mortgage makers couldn't churn them out fast enough, and private investors also began snapping up the loans in competition with Fannie and Freddie. Prof. Stan Liebowitz of the University of Texas uncovered a 1998 sales pitches by Bear Stearns, the leading private packager of mortgage-backed securities, in which a managing director of the firm assures banks in language remarkably similar to that used by government regulators that these loans were safer than traditionally thought and that investors were ready to buy them, if only banks would make more of them. "Do we automatically exclude or severely discount …loans with [poor credit scores]? Absolutely not," the eager investment banker tells his audience. Bear Stearns, of course, was eventually sunk by such loans.
Today, housing advocates and ex-government regulators say federal programs were not the problem because many of the worst loans portfolios were created by non-bank lenders which are not even subject to the Community Reinvestment Act. But that's an argument that ignores the much broader role that government played in watering down standards, including using pressure to force players across the industry to participate.
The Department of Housing and Urban Development under President Clinton, for instance, threatened to introduce legislation to make non-bank lenders, that is, mortgage finance companies, subject to CRA if these firms didn't sign on to affordable lending goals. HUD even crafted an agreement with the Mortgage Bankers Association, the industry trade group, which pledged that the group's members would aid in affordable housing goals. One of the first members of the MBA to take up the pledge was Countrywide, which pledged to introduce low-down payment loans with high income-to-payment ratios for low-income borrowers. Countrywide and its co-founder, Angelo Mozilo, ultimately became infamous as one of the first major mortgage lenders to melt down under the weight of its bad lending, but before it was notorious Countrywide was celebrated for its low-income efforts.
Today, the Obama administration acknowledges through its bailout program that those standards were unsafe. It's a backhanded acknowledgement that comes only because bailout efforts up until now have largely failed except in cases where borrowers are given new mortgages written to reflect former underwriting standards, which in many cases can only be accomplished by simply forgiving a big chunk of the borrower's debt. I suppose that's about as far as we can expect government to go in admitting the mess it helped to make.
The following article shows how reduced mortgage loan standards produced the sub prime loan problem. This all started with the CRA which was a socialistic program that was another attempt in a long line of programs to create black equality in America.
The reduced loan standards produced by Fannie and Freddie got risky loans into the financial system. The risky loans were not held by Fannie and Freddie but were bundled with good loans and sold all over the world. The people buying the bundled loans thought they were buying good quality securities because the securities had been given an excellent securities rating.
When the increase in home prices stopped, sub prime loan payments stopped, and the value of the securities became questionable. No new securities were sold. Everything froze in place and the person holding the securities was in trouble. The security could not be sold and part of the loan payment was not being made.
Since credit default swap deals had been cut the insurance companies were now on the hook to pay for the decrease in value of the securities.
The securities market is still frozen because no one knows the value of the securities because part the security is good and part bad.
Some people are willing to pay a very very low price for the security, but the holders of the security want a value equal to the loan payments on the good loans.
February 18, 2009
Feds Re-Impose Loan Standards They Helped Undermine
By Steven Malanga
http://www.realclearmarkets.com/articles/2009/02/feds_reimpose_loan_standards_t.html
When President Obama announces Washington's new plan to help troubled mortgage-holders today, the betting is that the program will include a loan-modification effort that reduces the size of a besieged homeowner's debt. One goal would be to cut the size of loans and perhaps also their interest rate so that a mortgage holder's monthly payment would equal no more than 31 percent of his pre-tax income. Fannie Mae and Freddie Mac have already been experimenting with an income-to-payment ratio of 38 percent in their loan modification efforts, but Washington wants to go further, indeed probably needs to go further, if it is to stem the tide of defaults.
There is a great irony that Washington will now lead the way in imposing new, stricter standards, including a tougher income-to-payment ratio, because it was Washington, prodded by affordable housing advocates, which pushed mortgage lenders to dilute their traditional underwriting values in the first place. Federal regulators attacked those established standards as being "unintentionally biased" against low and moderate income borrowers and used a variety of laws and regulatory bodies to push often resistant lenders into programs based on these lower standards. The government and those who backed its actions assured lenders these lower standards were safer than they thought, even though there was little research to support that contention. Now that a huge chunk of the market based on these debased standards has melted down, the government is going full circle.
The movement to water down underwriting standards grew out of claims of some housing advocates and elected officials that mortgage lenders were ‘redlining,' or avoiding, certain urban neighborhoods, and that these credit-starved areas were decaying from a lack of capital. When bankers countered that they received few credit-worthy applications based on their traditional underwriting criteria in many of these neighborhoods, regulators and housing advocates began to argue that there must be something wrong with the lending criteria, which needed to change.
One group that led the way was the Association of Community Organizations for Reform Now, or ACORN, which began protesting bank mergers and expansion requests in the mid-1980s under the Community Reinvestment Act. In 1986, ACORN threatened to oppose an acquisition by a Southern bank, Louisiana Bancshares, until the financial institution agreed to new "flexible credit and underwriting standards" for low-income borrowers, including agreeing to take into account on mortgage applications such income as public assistance and food stamps. ACORN also led a coalition of community groups that demanded industry-wide changes in lending standards for urban residents, including watering down minimum down-payment requirements. The community groups also attacked Fannie Mae as part of the problem with bank lending in certain areas because the giant, quasi government agency's underwriters were "strictly by-the-book interpreters" of standards who turned down purchases of unconventional loans, which sent a message to banks that these loans were unsafe.
Under pressure from Washington, Fannie Mae and Freddie Mac agreed to begin purchasing mortgages under new, looser guidelines. Freddie Mac, for instance, made 28 changes to its underwriting standards, including approving low-income buyers without credit histories or with bad credit as long as they were current on rent and utilities payments--even though research had concluded that such buyers are more likely to default. Freddie Mac also said it would count income from seasonal jobs and public assistance toward income minimums, although such income (particularly seasonal work) was by definition not steady.
The giant agencies began several experimental lending programs based on watered-down standards. Freddie Mac began a program with Sears Mortgage Corporation to make mortgages to borrowers with an income-to-monthly payment ratio of 50 percent, at a time when most private mortgage companies aimed for a 28-to-33 percent ratio. The program also allowed borrowers with bad credit to win mortgage approval if they took credit counseling classes administered by local nonprofits like ACORN, although research would show that credit counseling classes have little impact on default rates.
These efforts gained the endorsement of some of our most authoritative federal institutions. Shortly after producing a controversial study in 1992 which asserted there was some evidence that lenders were intentionally avoiding minority neighborhoods, the Federal Reserve Bank of Boston produced a "guide" to equal opportunity lending in which it told mortgage makers that conventional underwriting standards were "unintentionally biased" because they didn't take into account "the economic culture of urban, lower-income and nontraditional customers." Among other things, the Boston Fed told lenders they should consider junking the industry's traditional "obligation ratios," including the 28 percent income-to-payments ratio. The Fed noted in its guide that the "secondary market," that is, those that purchased mortgages from banks, was willing to buy loans with higher ratios, thereby implying that others thought these loans a good bet, too. But at this point the secondary market for such loans consisted of Fannie Mae and Freddie Mac, which had both been cajoled into buying them by Washington.
Under pressure, these institutions accepted these new standards even though there were plenty of early warning signs as well as several decades worth of research which suggested that when banks departed too far from traditional underwriting criteria delinquencies and foreclosures rose sharply. For instance, a minority loan program put together by banks in Atlanta after a newspaper series accused local financial institutions of redlining quickly ran into predictable trouble. The program allowed loans with payments that were up to 50 percent of an applicant's monthly income, and within a year, 10 percent of the loans were delinquent. Even worse, those who took out the loans fell deeper into other kinds of debt, defaulted on credit card payments and had goods they'd purchased on credit repossessed.
Meanwhile, a Freddie Mac program called Affordable Gold, which purchased loans from banks under looser underwriting standards, including loans which allowed a borrower to make a down payment with funds contributed from a third party like a government assistance program or a nonprofit, showed sharply higher default rates, up to four times higher than traditional underwriting standards.
Despite such evidence, over time these programs moved from the experimental stage to a large part of the marketplace because politicians in both parties made expanding the number of home owners in America a high priority, and the only way to keep doing that was to lend to people with increasingly riskier credit. Fannie Mae announced a $1 trillion commitment to purchase affordable housing loans in 1992, then in 1999 under pressure from the Clinton administration announced a new program to buy loans made to "borrowers with slightly impaired credit." In 2005 Fannie Mae and Freddie Mac committed to another $1 trillion in affordable housing lending.
And as their loan pools grew, their credit standards deteriorated. In a recent Forbes article Peter Wallison of the American Enterprise Institute and Edward Pinto, former chief credit officer of Fannie Mae, point out that by 2001, 18 percent of Fannie Mae's portfolio consisted of loans to people with credit scores below 680—the traditional definition of a loan to someone with riskier credit, who is also someone more likely to default.
Of course, with two huge federal agencies willing to purchase such loans, mortgage makers couldn't churn them out fast enough, and private investors also began snapping up the loans in competition with Fannie and Freddie. Prof. Stan Liebowitz of the University of Texas uncovered a 1998 sales pitches by Bear Stearns, the leading private packager of mortgage-backed securities, in which a managing director of the firm assures banks in language remarkably similar to that used by government regulators that these loans were safer than traditionally thought and that investors were ready to buy them, if only banks would make more of them. "Do we automatically exclude or severely discount …loans with [poor credit scores]? Absolutely not," the eager investment banker tells his audience. Bear Stearns, of course, was eventually sunk by such loans.
Today, housing advocates and ex-government regulators say federal programs were not the problem because many of the worst loans portfolios were created by non-bank lenders which are not even subject to the Community Reinvestment Act. But that's an argument that ignores the much broader role that government played in watering down standards, including using pressure to force players across the industry to participate.
The Department of Housing and Urban Development under President Clinton, for instance, threatened to introduce legislation to make non-bank lenders, that is, mortgage finance companies, subject to CRA if these firms didn't sign on to affordable lending goals. HUD even crafted an agreement with the Mortgage Bankers Association, the industry trade group, which pledged that the group's members would aid in affordable housing goals. One of the first members of the MBA to take up the pledge was Countrywide, which pledged to introduce low-down payment loans with high income-to-payment ratios for low-income borrowers. Countrywide and its co-founder, Angelo Mozilo, ultimately became infamous as one of the first major mortgage lenders to melt down under the weight of its bad lending, but before it was notorious Countrywide was celebrated for its low-income efforts.
Today, the Obama administration acknowledges through its bailout program that those standards were unsafe. It's a backhanded acknowledgement that comes only because bailout efforts up until now have largely failed except in cases where borrowers are given new mortgages written to reflect former underwriting standards, which in many cases can only be accomplished by simply forgiving a big chunk of the borrower's debt. I suppose that's about as far as we can expect government to go in admitting the mess it helped to make.
Friday, March 6, 2009
Order of Authority
Order of Authority
There is a statement that I believe tells the whole story about the difference between Capitalism and Socialism.
Capitalism produces unequal prosperity, but Socialism produces equal poverty.
Please don't say we need a little of both because we are in an economic disaster because we forced the CRA socialist program on Capitalism. The choice is only one or the other, the same thing you do when you go into a voting booth, or when you make a decision to accept Jesus Christ or the reject Jesus Christ.
Both Capitalism and Socialism have problems. Capitalism can lead to a few stealing a lot of money, but Socialism can lead to many stealing a little money, which probably balances out.
I believe there is an order of authority that will work.
Capitalism needs government regulation
Government needs Christian Principles
Christians need to follow the commandments/doctrines of the Bible and quit making excuses for those that are neither Christians nor following the commandments/doctrines of the Bible.
I Corinthians 11:3 states, "But I would have you know, that the head of every man is Christ; and the head of the woman is the man; and the head of Christ is God."
Many will say that this did not work nor will not work. The reason this order of authority is not working is because the rise of Atheism produced the removal of Christian Principles from government.
One of the first things was government allowed the teaching of evolution which says there is no God, then the government removed prayer, then the government removed the Ten Commandments. The judicial system part of the government legalized pornography, abortion and homosexuality, which are all contrary to the Bible, which tells people the Bible is foolish.
Throughout this whole time, the Atheistic Liberal News and Entertainment Industry was aiding the Atheists and democrats by destroying any Christian or Republican.
The Church failed to vigorously oppose the removal of Christian Principles from the government under the assumption Christians would not participate in evil, but would not criticize.
I have asked, "Would you rather your son be a preacher or a politician". The answer is always a preacher. Until Christians regain control of the Atheistic Liberal News and Entertainment Industry and the government, things are just going to continue to get worse.
The disease, death and destruction of the Atheistic Lifestyle cannot be sustained by any government. There are two million deaths per year due to AIDS and an enormous health care/welfare cost of keeping AIDS people alive. There is a 30% illegitimacy rate that is an enormous health care/welfare burden.
Capitalism is harsh on needy people, but at least there is some money to trickle down. With Socialism there is no money anywhere except if the government prints money, which becomes worthless by inflation.
I believe in Democracy, Christianity and Capitalism. The boat we are in is Democracy, the sail is Capitalism and the rudder is Christianity (or it should be). Without a rudder the ship will crash on the rocks. Without a sail the ship will set and rot.
Christians need to get control of the rudder and host the sails. Then maybe there will be something available to trickle down to the needy.
Either I am wrong or Obama and the democrats are wrong.
There is a statement that I believe tells the whole story about the difference between Capitalism and Socialism.
Capitalism produces unequal prosperity, but Socialism produces equal poverty.
Please don't say we need a little of both because we are in an economic disaster because we forced the CRA socialist program on Capitalism. The choice is only one or the other, the same thing you do when you go into a voting booth, or when you make a decision to accept Jesus Christ or the reject Jesus Christ.
Both Capitalism and Socialism have problems. Capitalism can lead to a few stealing a lot of money, but Socialism can lead to many stealing a little money, which probably balances out.
I believe there is an order of authority that will work.
Capitalism needs government regulation
Government needs Christian Principles
Christians need to follow the commandments/doctrines of the Bible and quit making excuses for those that are neither Christians nor following the commandments/doctrines of the Bible.
I Corinthians 11:3 states, "But I would have you know, that the head of every man is Christ; and the head of the woman is the man; and the head of Christ is God."
Many will say that this did not work nor will not work. The reason this order of authority is not working is because the rise of Atheism produced the removal of Christian Principles from government.
One of the first things was government allowed the teaching of evolution which says there is no God, then the government removed prayer, then the government removed the Ten Commandments. The judicial system part of the government legalized pornography, abortion and homosexuality, which are all contrary to the Bible, which tells people the Bible is foolish.
Throughout this whole time, the Atheistic Liberal News and Entertainment Industry was aiding the Atheists and democrats by destroying any Christian or Republican.
The Church failed to vigorously oppose the removal of Christian Principles from the government under the assumption Christians would not participate in evil, but would not criticize.
I have asked, "Would you rather your son be a preacher or a politician". The answer is always a preacher. Until Christians regain control of the Atheistic Liberal News and Entertainment Industry and the government, things are just going to continue to get worse.
The disease, death and destruction of the Atheistic Lifestyle cannot be sustained by any government. There are two million deaths per year due to AIDS and an enormous health care/welfare cost of keeping AIDS people alive. There is a 30% illegitimacy rate that is an enormous health care/welfare burden.
Capitalism is harsh on needy people, but at least there is some money to trickle down. With Socialism there is no money anywhere except if the government prints money, which becomes worthless by inflation.
I believe in Democracy, Christianity and Capitalism. The boat we are in is Democracy, the sail is Capitalism and the rudder is Christianity (or it should be). Without a rudder the ship will crash on the rocks. Without a sail the ship will set and rot.
Christians need to get control of the rudder and host the sails. Then maybe there will be something available to trickle down to the needy.
Either I am wrong or Obama and the democrats are wrong.
Thursday, March 5, 2009
Order of Events for the Economic Disaster of 2008
Order of Events for the Economic Disaster of 2008
Everything was fine until the price of houses started to decrease (saturated market). The order of events that I see were:
1) House prices start to drop.
2) Drop in house prices triggers Sub Prime loan defaults. With rising house prices, even Sub Prime defaults did not mean much since the house could be resold, but when the house could not be resold, the mortgage payment stopped.
3) Sub Prime defaults causes Investment Companies, Fannie and Freddie to go bankrupt (government takeover) because potential loses where greater than assets.
4) Dropping house prices dried up capital so people stopped spending.
5) Reduced spending caused the stock market to drop.
6) Drop in Stock Market triggers the credit default swap crisis where AIG may owe an infinite amount of money on the insurance policies for stock price drops. A lot of people are expecting AIG to come up with the money to cover the stock loses so there is another shoe to fall when AIG cannot pay.
Now both the real estate market and the stock market are worthless.
Now, no one will purchase anything because the price could drop more or they just do not have any cash. No one will lend money because the only people wanting loans are those that have a poor credit rating.
The concept of government spending their way out of this mess, will probably cause the worst inflation that has ever existed.
The two major mistakes were:
1) House prices will always rise.
2) The stock market will never drop more than about 20%
There is an old saying, "The road to hell is paved with good intentions". The CRA was intended for good, but it was based on hope and not reality.
Democrats tend to base policies too much on hope and Republicans tend to base policies too much on reality. I believe President Bush made the most honest attempt by any president to bring hope and reality together, but that caused both the democrats and Republicans to hate him.
I believe the CRA was one of the many programs that have been attempted to bring equality to blacks in America. I believe the black inequality problem is not economics but rather the Village Family Concept that is totally opposite to the Christian Family Concept of a man, woman and children family where the man provides the resources for the family and the woman natures the family. The Village Family Concept accepts illegitimate children that means instant poverty for the mother/child and places the burden of heath care/welfare on the whole nation.
Everything was fine until the price of houses started to decrease (saturated market). The order of events that I see were:
1) House prices start to drop.
2) Drop in house prices triggers Sub Prime loan defaults. With rising house prices, even Sub Prime defaults did not mean much since the house could be resold, but when the house could not be resold, the mortgage payment stopped.
3) Sub Prime defaults causes Investment Companies, Fannie and Freddie to go bankrupt (government takeover) because potential loses where greater than assets.
4) Dropping house prices dried up capital so people stopped spending.
5) Reduced spending caused the stock market to drop.
6) Drop in Stock Market triggers the credit default swap crisis where AIG may owe an infinite amount of money on the insurance policies for stock price drops. A lot of people are expecting AIG to come up with the money to cover the stock loses so there is another shoe to fall when AIG cannot pay.
Now both the real estate market and the stock market are worthless.
Now, no one will purchase anything because the price could drop more or they just do not have any cash. No one will lend money because the only people wanting loans are those that have a poor credit rating.
The concept of government spending their way out of this mess, will probably cause the worst inflation that has ever existed.
The two major mistakes were:
1) House prices will always rise.
2) The stock market will never drop more than about 20%
There is an old saying, "The road to hell is paved with good intentions". The CRA was intended for good, but it was based on hope and not reality.
Democrats tend to base policies too much on hope and Republicans tend to base policies too much on reality. I believe President Bush made the most honest attempt by any president to bring hope and reality together, but that caused both the democrats and Republicans to hate him.
I believe the CRA was one of the many programs that have been attempted to bring equality to blacks in America. I believe the black inequality problem is not economics but rather the Village Family Concept that is totally opposite to the Christian Family Concept of a man, woman and children family where the man provides the resources for the family and the woman natures the family. The Village Family Concept accepts illegitimate children that means instant poverty for the mother/child and places the burden of heath care/welfare on the whole nation.
Thursday, February 26, 2009
Capitalism versus Socialism
Capitalism versus Socialism
I have always advocated Democracy, Christianity and Capitalism as the government for America. I have always been afraid of Democracy, Atheism and Socialism.
I have always known that Capitalism was dangerous, but thought Christian Principles could control the harsh nature of Capitalism. Unfortunately, Christian Principles no longer have any control over Capitalism because Christianity has been effectively removed from American Society. When you eliminate the Ten Commandments, you basically authorize lying, cheating and stealing. Isn't everyone doing it?
When the Economic Disaster of 2008 unfolded, I wanted to know what went wrong with Capitalism and wanted to know if I was wrong in what I advocated. What became apparent was that the root cause of the Economic Disaster of 2008 was the Community Reinvestment Act, Fannie Mae and Freddie Mac. The CRA was a socialistic program that forced banks to make risky sub prime loans. Banks resisted the risky sub prime loans till Fannie and Freddie were created to provide a guarantee for the sub prime loans. The guarantees gave sub prime loans an implied "AAA" rating so every crooked organization got into the sub prime business.
I knew Obama was a socialist, but I had no idea how effective he would be in making Capitalism the scapegoat for the Economic Disaster of 2008. I never thought so much money would be spent on implementing Socialism so fast.
I believe America is in for a world of misery as there is an attempt to implement Socialism.
In the long run, I believe it will be proven Capitalism is better than Socialism, but the question is whether America can recover from the Socialism.
Capitalism is loaning money to people you expect will pay it back.
Socialism is loaning money to people you hope sill pay it back.
Capitalism produces unequal prosperity, but Socialism produces equal proverty.
The following are my concerns about the Socialism being implemented by the Obama Administration.
Inflation
The democrats are spending money like a bunch of horny sailors on leave. democrats are asking for 600 billion for health care, 100 billion for education, 200 billion for the Iraq/Afghanistan war, etc. Inflation is sure to follow when the government starts printing money. Hillary Clinton would not mention human rights to China because the Obama Administration needs China to buy American debt. Why would China buy American debt at a 2 of 3% interest rate, when China can see an inflation rate of 10 to 20% in America?
Price Controls
When inflation starts, price controls will be implemented. Right now doctors, hospitals and medical insurance companies are looking at the massive health care/welfare spending as a pot of gold, but as sure as inflation starts, there will be price and wage controls on doctors and hospitals. There won't even be a need for insurance companies.
Wars
Socialists are usually pacificist, so they will not fight an enemy. They spend money on defense, but defense is useless in a siege situation. Just one time that the defense fails and it is all over. Capitalists know they will make mistakes in offensive wars, but it is better to make a mistake and kill the enemy instead of making a mistake and killing your own people. The appeasement policy of the Clinton Administration caused 3000 Americans to be killed on 9/11. A failure to have a strong military is always an invitation to an enemy.
Christians
Socialists are usually Atheists, so they will try to eliminate Christianity. The "Hate Crime" legislation is a sure sign of the way things can go. A lot of money is going to spent on education, but "diversity training" may be the main part of the education. For information on what is happening in Massachusetts go to www.massresistance.org
Free Speech and Freedom of the Press
The Atheistic Liberal News and Entertainment Industry has always been biased for democrats, but if the news media begins to turn on the Obama Administration, the government will take over control of the news media. The "Fairness Doctrine" is a sure sign of the way things can go.
I have always advocated Democracy, Christianity and Capitalism as the government for America. I have always been afraid of Democracy, Atheism and Socialism.
I have always known that Capitalism was dangerous, but thought Christian Principles could control the harsh nature of Capitalism. Unfortunately, Christian Principles no longer have any control over Capitalism because Christianity has been effectively removed from American Society. When you eliminate the Ten Commandments, you basically authorize lying, cheating and stealing. Isn't everyone doing it?
When the Economic Disaster of 2008 unfolded, I wanted to know what went wrong with Capitalism and wanted to know if I was wrong in what I advocated. What became apparent was that the root cause of the Economic Disaster of 2008 was the Community Reinvestment Act, Fannie Mae and Freddie Mac. The CRA was a socialistic program that forced banks to make risky sub prime loans. Banks resisted the risky sub prime loans till Fannie and Freddie were created to provide a guarantee for the sub prime loans. The guarantees gave sub prime loans an implied "AAA" rating so every crooked organization got into the sub prime business.
I knew Obama was a socialist, but I had no idea how effective he would be in making Capitalism the scapegoat for the Economic Disaster of 2008. I never thought so much money would be spent on implementing Socialism so fast.
I believe America is in for a world of misery as there is an attempt to implement Socialism.
In the long run, I believe it will be proven Capitalism is better than Socialism, but the question is whether America can recover from the Socialism.
Capitalism is loaning money to people you expect will pay it back.
Socialism is loaning money to people you hope sill pay it back.
Capitalism produces unequal prosperity, but Socialism produces equal proverty.
The following are my concerns about the Socialism being implemented by the Obama Administration.
Inflation
The democrats are spending money like a bunch of horny sailors on leave. democrats are asking for 600 billion for health care, 100 billion for education, 200 billion for the Iraq/Afghanistan war, etc. Inflation is sure to follow when the government starts printing money. Hillary Clinton would not mention human rights to China because the Obama Administration needs China to buy American debt. Why would China buy American debt at a 2 of 3% interest rate, when China can see an inflation rate of 10 to 20% in America?
Price Controls
When inflation starts, price controls will be implemented. Right now doctors, hospitals and medical insurance companies are looking at the massive health care/welfare spending as a pot of gold, but as sure as inflation starts, there will be price and wage controls on doctors and hospitals. There won't even be a need for insurance companies.
Wars
Socialists are usually pacificist, so they will not fight an enemy. They spend money on defense, but defense is useless in a siege situation. Just one time that the defense fails and it is all over. Capitalists know they will make mistakes in offensive wars, but it is better to make a mistake and kill the enemy instead of making a mistake and killing your own people. The appeasement policy of the Clinton Administration caused 3000 Americans to be killed on 9/11. A failure to have a strong military is always an invitation to an enemy.
Christians
Socialists are usually Atheists, so they will try to eliminate Christianity. The "Hate Crime" legislation is a sure sign of the way things can go. A lot of money is going to spent on education, but "diversity training" may be the main part of the education. For information on what is happening in Massachusetts go to www.massresistance.org
Free Speech and Freedom of the Press
The Atheistic Liberal News and Entertainment Industry has always been biased for democrats, but if the news media begins to turn on the Obama Administration, the government will take over control of the news media. The "Fairness Doctrine" is a sure sign of the way things can go.
Wednesday, February 25, 2009
Correction
Correction
In the original post I stated the following.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 zillion dollar problem. Even if Fannie Mae and Freedie Mac are on the hook for only one third of the problem, that is still 40 trillion dollars.
This was incorrect and should read.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 trillion dollar problem. Even if Fannie Mae and Freddie Mac are on the hook for only one third of the problem, that is still 467 billion dollars.
In the original post I stated the following.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 zillion dollar problem. Even if Fannie Mae and Freedie Mac are on the hook for only one third of the problem, that is still 40 trillion dollars.
This was incorrect and should read.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 trillion dollar problem. Even if Fannie Mae and Freddie Mac are on the hook for only one third of the problem, that is still 467 billion dollars.
Tuesday, February 24, 2009
CRA, Fannie Mae and Freddie Mac
CRA, Fannie Mae and Freddie Mac
The CRA by itself would never have produced the Financial Disaster of 2008, but when the risky CRA loans were guaranteed by Fannie Mae and Freddie Mac, the risky loans became "AAA" rated because they were backed by the federal government.
This linking of CRA, Fannie Mae and Freddie Mac occurred when the CRA was revised in 1995 under the Clinton Administration.
-----------------------------------------------------
2/23/09
Community Reinvestment Act
From Wikipedia, the free encyclopedia
In October 1997, First Union Capital Markets and Bear, Stearns & Co launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities. The securities were guaranteed by Freddie Mac and had an implied "AAA" rating.[29][22] The public offering was several times oversubscribed, predominantly by money managers and insurance companies who were not buying them for CRA credit.[30][edit] Legislative changes 1999.
----------------------------------
Please note the phrase "implied "AAA" rating".
The reason the housing bubble lasted so long and the dangers not fully recognized was "rising home values". I remember a phrase called "flipping". Flipping meant buying a rundown home, throwing some paint on it and selling it for a very large profit. It was all possible because home values were rising and the Fannie and Freddie were guaranteeing the loans. Even if the people buying the home defaulted, another coat of paint was applied and sold again with a big profit.
Everyone was fat, dumb and happy, until the housing market was saturated with homes. When the defaulted homes could not be resold, the people turned to Fannie and Freddie to pay, but Fannie and Freddie did not have the money to pay.
Fannie and Freddie are now in default on there loan guarantees.
The root cause of the Financial Disaster of 2008 was the CRA, a piece of socialistic legislation passed by the democrats in 1977 in the Carter Administration and amended by democrats in 1995 in the Clinton Administration.
The idea for a solution being floated is to wipe out all the sub prime debt and start all over again. This means trillions of dollars lost by people who thought they were buying an investment that had a "AAA" rating. It also means violating the rule of "Moral Hazard", because evil activity is being rewarded.
The CRA by itself would never have produced the Financial Disaster of 2008, but when the risky CRA loans were guaranteed by Fannie Mae and Freddie Mac, the risky loans became "AAA" rated because they were backed by the federal government.
This linking of CRA, Fannie Mae and Freddie Mac occurred when the CRA was revised in 1995 under the Clinton Administration.
-----------------------------------------------------
2/23/09
Community Reinvestment Act
From Wikipedia, the free encyclopedia
In October 1997, First Union Capital Markets and Bear, Stearns & Co launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities. The securities were guaranteed by Freddie Mac and had an implied "AAA" rating.[29][22] The public offering was several times oversubscribed, predominantly by money managers and insurance companies who were not buying them for CRA credit.[30][edit] Legislative changes 1999.
----------------------------------
Please note the phrase "implied "AAA" rating".
The reason the housing bubble lasted so long and the dangers not fully recognized was "rising home values". I remember a phrase called "flipping". Flipping meant buying a rundown home, throwing some paint on it and selling it for a very large profit. It was all possible because home values were rising and the Fannie and Freddie were guaranteeing the loans. Even if the people buying the home defaulted, another coat of paint was applied and sold again with a big profit.
Everyone was fat, dumb and happy, until the housing market was saturated with homes. When the defaulted homes could not be resold, the people turned to Fannie and Freddie to pay, but Fannie and Freddie did not have the money to pay.
Fannie and Freddie are now in default on there loan guarantees.
The root cause of the Financial Disaster of 2008 was the CRA, a piece of socialistic legislation passed by the democrats in 1977 in the Carter Administration and amended by democrats in 1995 in the Clinton Administration.
The idea for a solution being floated is to wipe out all the sub prime debt and start all over again. This means trillions of dollars lost by people who thought they were buying an investment that had a "AAA" rating. It also means violating the rule of "Moral Hazard", because evil activity is being rewarded.
Monday, February 23, 2009
Gramm-Leach-Bliley Act
Gramm-Leach-Bliley Act
There is no question the GLBA contributed to the Financial Disaster of 2008.
The influence of big profits by unregulated investment institutions was too great a temptation for regulated banks (Glass-Steagall Act) and Republicans.
The GLBA made the problem worse, but the heart of the problem leads back to the Community Reinvestment Act, a socialistic program passed by democrats in 1977 in the Carter democratic administration and strengthened in 1995 in the Clinton democratic administration.
There is no question Republicans yielded to the temptation of the money, but I would assess the blame as 80% democrats and 20% Republicans.
Democrats are unfit for running the government because they enact socialistic/Atheistic legislation that create financial and moral messes.
It is unfortunate that the Atheistic Liberal News and Entertainment Media provides propaganda to help get democrats elected to control the government.
There is a cultural war in America between Christians and Atheists. This war is being fought on the battlefield of politics. The battles are in the voting booth. The prize in the cultural war is the hearts, minds and souls of the children. The Atheistic liberal news media greatly influences both domestic and foreign policy by constantly reporting only bad news about Christians, Conservatives and Republicans and only good news about atheists, liberals and democrats. The agenda of the Atheistic liberal news media is to promote evolution, extreme environmentalism, socialism, feminism, pornography, abortion, adultery, homosexuality and the Atheistic Lifestyle by having democrats in control of government.
-----------------------------------
Gramm-Leach-Bliley Act
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999, is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services under brands including Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process [1]. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.
Remaining restrictions
Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory [sic] rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act (CRA).[9]. This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements." [10]
There is no question the GLBA contributed to the Financial Disaster of 2008.
The influence of big profits by unregulated investment institutions was too great a temptation for regulated banks (Glass-Steagall Act) and Republicans.
The GLBA made the problem worse, but the heart of the problem leads back to the Community Reinvestment Act, a socialistic program passed by democrats in 1977 in the Carter democratic administration and strengthened in 1995 in the Clinton democratic administration.
There is no question Republicans yielded to the temptation of the money, but I would assess the blame as 80% democrats and 20% Republicans.
Democrats are unfit for running the government because they enact socialistic/Atheistic legislation that create financial and moral messes.
It is unfortunate that the Atheistic Liberal News and Entertainment Media provides propaganda to help get democrats elected to control the government.
There is a cultural war in America between Christians and Atheists. This war is being fought on the battlefield of politics. The battles are in the voting booth. The prize in the cultural war is the hearts, minds and souls of the children. The Atheistic liberal news media greatly influences both domestic and foreign policy by constantly reporting only bad news about Christians, Conservatives and Republicans and only good news about atheists, liberals and democrats. The agenda of the Atheistic liberal news media is to promote evolution, extreme environmentalism, socialism, feminism, pornography, abortion, adultery, homosexuality and the Atheistic Lifestyle by having democrats in control of government.
-----------------------------------
Gramm-Leach-Bliley Act
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999, is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services under brands including Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process [1]. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.
Remaining restrictions
Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory [sic] rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act (CRA).[9]. This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements." [10]
Thursday, February 19, 2009
Information Web Links
Here is some links to the facts about the Economic Disaster of 2008. From the start of the problem to the end.
These links show how the socialistic - racially biased Community Reinvestment Act was imposed on Capitalism by democrats.
http://en.wikipedia.org/wiki/Fannie_Mae
http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html
http://www.youtube.com/watch?v=_MGT_cSi7Rs
http://www.youtube.com/watch?v=RAuOEdttjZQ
http://iusbvision.wordpress.com/2008/09/21/in-plain-english-how-did-the-biggest-financial-scandal-in-history-happen/
http://www.foxnews.com/story/0,2933,432501,00.html
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&partner=permalink&exprod=permalink
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
http://online.wsj.com/article/SB122212948811465427.html
http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=306370789279709
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/11/AR2008091102841.html
http://seekingalpha.com/article/95436-the-u-s-on-the-precipice
http://www.opensecrets.org/news/2008/09/brothers-grim-is-lehman-next.html
http://directorblue.blogspot.com/2008/09/jamie-gorelick-mistress-of-disaster.html
The Republicans trying to stop it,
http://hotair.com/archives/2008/09/16/whose-policies-led-to-the-credit-crisis/
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B74DABC67-B059-465E-AF68-6DB22EB961CD%7D
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=2
These links show how the socialistic - racially biased Community Reinvestment Act was imposed on Capitalism by democrats.
http://en.wikipedia.org/wiki/Fannie_Mae
http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html
http://www.youtube.com/watch?v=_MGT_cSi7Rs
http://www.youtube.com/watch?v=RAuOEdttjZQ
http://iusbvision.wordpress.com/2008/09/21/in-plain-english-how-did-the-biggest-financial-scandal-in-history-happen/
http://www.foxnews.com/story/0,2933,432501,00.html
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&partner=permalink&exprod=permalink
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
http://online.wsj.com/article/SB122212948811465427.html
http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=306370789279709
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/11/AR2008091102841.html
http://seekingalpha.com/article/95436-the-u-s-on-the-precipice
http://www.opensecrets.org/news/2008/09/brothers-grim-is-lehman-next.html
http://directorblue.blogspot.com/2008/09/jamie-gorelick-mistress-of-disaster.html
The Republicans trying to stop it,
http://hotair.com/archives/2008/09/16/whose-policies-led-to-the-credit-crisis/
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B74DABC67-B059-465E-AF68-6DB22EB961CD%7D
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=2
Wednesday, February 18, 2009
Credit Default Swaps
Credit Default Swaps
The idea of credit default swaps was that an insurance policy could be bought so that if a stock went down, the insurance policy would cover the loses.
The idea of all insurance is that if something bad happens the insurance policy will pay for the cure for the problem.
The assumption of every type of insurance is that only a small fraction of the stocks will go down, or that only a small fraction of the people have a problem.
The Economic Disaster of 2008 has proven insurance does not work if a large fraction of the stocks go down. Insurance will not work if a large fraction of the people expect to get anything from insurance.
Insurance and socialism are closely linked, because they are a way to avoid personal responsibility. You can take a greater risk if you have the safety net of insurance.
People must return to personal responsibility.
The best way to achieve personal responsibility is by following Christian Principles, but that requires accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible.
The idea of credit default swaps was that an insurance policy could be bought so that if a stock went down, the insurance policy would cover the loses.
The idea of all insurance is that if something bad happens the insurance policy will pay for the cure for the problem.
The assumption of every type of insurance is that only a small fraction of the stocks will go down, or that only a small fraction of the people have a problem.
The Economic Disaster of 2008 has proven insurance does not work if a large fraction of the stocks go down. Insurance will not work if a large fraction of the people expect to get anything from insurance.
Insurance and socialism are closely linked, because they are a way to avoid personal responsibility. You can take a greater risk if you have the safety net of insurance.
People must return to personal responsibility.
The best way to achieve personal responsibility is by following Christian Principles, but that requires accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible.
Moral Hazard
Moral Hazard
The phrase moral hazard is now being used in the discussion of the Financial Disaster of 2008.
The moral hazard is that if you bailout a bank that created its own problems, what is to prevent it from doing the same thing again.
This leads to a similar problem in contracting called "implied consent". If you fail to warn a company of the first infraction of the contract, there is an implied consent that the infraction provision of the contract was not important and can not be used for breach of contract later on.
By bailing out or infusing capital into banks the government has crossed over into socialism.
Moral Hazard is the problem with socialism. If you give health care/welfare to a person that created their own problems, what is to prevent them from doing the same thing again.
The reality is that when you do offer health care/welfare or bailouts, you are giving implied consent to the evil that was being done to create the problems.
In the economic world Moral Hazard was killed by saying that the economy would die if the bailout was not done.
In the social world Moral Hazard is killed by saying the person will die if the heath care/welfare in not provided.
There is no good thing (cure) that can be done after sin has been begun, just bad choices.
By following Christian Principles the sin can be prevented, but that requires accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible.
The phrase moral hazard is now being used in the discussion of the Financial Disaster of 2008.
The moral hazard is that if you bailout a bank that created its own problems, what is to prevent it from doing the same thing again.
This leads to a similar problem in contracting called "implied consent". If you fail to warn a company of the first infraction of the contract, there is an implied consent that the infraction provision of the contract was not important and can not be used for breach of contract later on.
By bailing out or infusing capital into banks the government has crossed over into socialism.
Moral Hazard is the problem with socialism. If you give health care/welfare to a person that created their own problems, what is to prevent them from doing the same thing again.
The reality is that when you do offer health care/welfare or bailouts, you are giving implied consent to the evil that was being done to create the problems.
In the economic world Moral Hazard was killed by saying that the economy would die if the bailout was not done.
In the social world Moral Hazard is killed by saying the person will die if the heath care/welfare in not provided.
There is no good thing (cure) that can be done after sin has been begun, just bad choices.
By following Christian Principles the sin can be prevented, but that requires accepting Jesus Christ as Lord/Savior and committing to following the commandments/doctrines of the Bible.
Sunday, February 15, 2009
Economic Disaster of 2008
Economic Disaster of 2008
I believe the whole truth cannot be kept hidden, but it is usually not told all at one time, especially when those who could tell the whole truth would be hurt by the whole truth.
It is only that by piecing together information from various sources and reading between the lines on information that is make available is it possible to construct the what I believe to be the whole truth.
I welcome any information that confirms or refutes the following discussion. Many web links already exist that show how the democrats defended Fannie Mae and Freedie Mac when questions were raised by Republicans. One of the best is
http://www.youtube.com/watch?v=_MGT_cSi7Rs
It will be necessary for private individuals to piece together the whole truth because the Atheistic Liberal News Media and democrats both support socialism and aid each other in a Cultural War that has been taking place since the Roosevelt Administration.
I believe the Economic Disaster of 2008 was mostly the fault of the democrats when they passed the Community Reinvestment Act.
Red Lining
The failure of our financial system was caused by the democrats creating the socialistic programs, Community Reinvestment Act, Fannie Mae and Freedie Mac. In order to simplify home loan processing, banks had identified (Red Lined) areas where they would probably not make a loan. The concept of Red Lining by Banks could have been considered either good economics or bad racism. The democrats treated Red Lining as bad racism and forced the banks to make sub prime loans to people by passing the socialist Community Reinvestment Act. The banks refused until the democrats created Fannie Mae and Freedie Mac to guarantee the sub prime loans. With the loans being guaranteed by the government, it did not make any difference about the home buyers ability to pay, since the loan was with the government. All kinds of financial thieves jumped in the sub prime loan business and the drove up the price of housing for everyone, creating a housing bubble. When the sub prime loans defaulted the housing bubble burst, and the value of every home in America dropped.
Some will say wall street should not have taken advantage of the sub prime loan guarantees, but there was a saying by W. C Fields, "It is a mortal sin not to take advantage of a fool". It is best that you do not tempt people by spending money foolishly.
This affected the whole world because the sub prime loans were bundled together with good loans because even a sub prime loan is a good loan when guaranteed by the American government.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 zillion dollar problem. Even if Fannie Mae and Freedie Mac are on the hook for only one third of the problem, that is still 40 trillion dollars.
When the banks started seeing the sub prime failures, they turned to Fannie Mae and Freedie Mac to pay up on the guarantees. Fannie Mae and Freedie Mac instantly knew the worst case scenario had just occurred because they only had a 3% reserve and housing prices had dropped by at least 20%.
That is when TARP was offered to the banks to prevent the banks from taking Fannie Mae and Freedie Mac to court. Unfortunately the democrats who caused the problem by creating the CRA, got control of the government and instead of working with the banks they made the banks the scapegoat.
When the banks told the democrats that they were not beggars, but victims, the banks were told to shut up or the banks would be nationalized. Nationalization would mean Fannie Mae and Feedie Mac would not owe any bank in America anything. This means every homeowner in America faces a $20,000 loss. For self sufficient people the $20,000 is a real loss, but for the people who had the sub prime loans, it only means their bad credit rating gets worse.
Now the democrats that created the mess are asking banks to make more bad loans to solve the economic mess, but this time the democrats are not going to provide loan guarantees.
The banks should look Barney Frank right in the face and tell him the TARP money already received will be applied to the Fannie Mae and Freedie Mac debt. I don't thing Barney Frank will nationalize the banks, because it would wipe out the stock market and stop all international trade. Some might think that would be good, but America is not self sufficient either. If the flow of oil stops, millions die.
Lessons Learned
The most obvious lesson to be learned is that Socialism is a horrible concept. America started on the path of Socialism in the Roosevelt Administration. It grew into Civil Rights and there is now a concept that the government has a responsibility to provide health care /welfare for anyone that says they have a problem even if the problem is self inflicted due to too much wine, women and song (also known as the Atheistic Lifestyle).
Too much of what the democrats do is based on hope and not reality. Capitalism is lending money to people you expect will pay it back. Socialism is lending money to people you hope will pay it back.
The concept that government has a responsibility to provide anything to anyone is unconstitutional. The Constitution talks about the government providing protection but not services.
It may be reasonable for government to undertake large projects that could not be funded by private companies, but the government should contract for those projects and the projects should benefit at least 66% of the people instead of minorities.
Socialistic programs are very onerous to Christians because they are anti religious. Socialism is a dependence on the government instead of a dependance on God. A dependence on God leads to the Christian Lifestyle that is the most environmentally friendly socially responsible lifestyle that is possible.
Remedies
The government should eliminate any and all health care/welfare/socialistic programs because they favor the needy at the expense of the self sufficient. This would be a major problem for the self inflicted needy, but I believe the truly needy can be taken care of by Christian charity.
The government should be very careful about loan guarantees. In order to get banks to make risky student loans, the government allowed the banks to charge 9% interest on student loans which is almost impossible to pay off.
Capitalism is making loans to people you expect will pay back the loan.
Socialism is making loans to people you hope will pay back the loan.
The government should never accept the obligation of cleaning up a mess that a person has inflicted on themselves. Illegitimate children are a mess for the woman and all of society. It is horrible to think of the suffering of a child, but the child is the product of sin. It should be a criminal offence punishable by death for the parents to fail to financially support a child. The parents should be executed and the child put up for adoption or raised in an Christian orphanage that is contracted with the government.
The is a law whereby a business can just refuse to pay debts called "Commercially Impossibility" I believe we are in a situation where it going to have to be assumed that Fannie Mae and Freedie Mac are never going to pay anything back and figure out how to absorb the lost money. Maybe debt swaps and very long tax credits.
I have a feeling the mortgage backed securities are never going to be repaid (I am not even sure the interest on the securities is being paid). Probable best to send the title of property to the securities owners and let them decide to live in, rent or sell the property.
I believe the whole truth cannot be kept hidden, but it is usually not told all at one time, especially when those who could tell the whole truth would be hurt by the whole truth.
It is only that by piecing together information from various sources and reading between the lines on information that is make available is it possible to construct the what I believe to be the whole truth.
I welcome any information that confirms or refutes the following discussion. Many web links already exist that show how the democrats defended Fannie Mae and Freedie Mac when questions were raised by Republicans. One of the best is
http://www.youtube.com/watch?v=_MGT_cSi7Rs
It will be necessary for private individuals to piece together the whole truth because the Atheistic Liberal News Media and democrats both support socialism and aid each other in a Cultural War that has been taking place since the Roosevelt Administration.
I believe the Economic Disaster of 2008 was mostly the fault of the democrats when they passed the Community Reinvestment Act.
Red Lining
The failure of our financial system was caused by the democrats creating the socialistic programs, Community Reinvestment Act, Fannie Mae and Freedie Mac. In order to simplify home loan processing, banks had identified (Red Lined) areas where they would probably not make a loan. The concept of Red Lining by Banks could have been considered either good economics or bad racism. The democrats treated Red Lining as bad racism and forced the banks to make sub prime loans to people by passing the socialist Community Reinvestment Act. The banks refused until the democrats created Fannie Mae and Freedie Mac to guarantee the sub prime loans. With the loans being guaranteed by the government, it did not make any difference about the home buyers ability to pay, since the loan was with the government. All kinds of financial thieves jumped in the sub prime loan business and the drove up the price of housing for everyone, creating a housing bubble. When the sub prime loans defaulted the housing bubble burst, and the value of every home in America dropped.
Some will say wall street should not have taken advantage of the sub prime loan guarantees, but there was a saying by W. C Fields, "It is a mortal sin not to take advantage of a fool". It is best that you do not tempt people by spending money foolishly.
This affected the whole world because the sub prime loans were bundled together with good loans because even a sub prime loan is a good loan when guaranteed by the American government.
I did not realize how bad this situation is till I saw a statement that said that the problem in Europe was a 40 trillion dollar problem. It is hard to believe numbers that big, but 200 hundred million people in America with an average family size of 3 yields about 70 million homes. Assuming the average house has dropped at least 20,000 dollars, that means the housing bubble represents a 20,000 dollars times 70 million homes or 1.4 zillion dollar problem. Even if Fannie Mae and Freedie Mac are on the hook for only one third of the problem, that is still 40 trillion dollars.
When the banks started seeing the sub prime failures, they turned to Fannie Mae and Freedie Mac to pay up on the guarantees. Fannie Mae and Freedie Mac instantly knew the worst case scenario had just occurred because they only had a 3% reserve and housing prices had dropped by at least 20%.
That is when TARP was offered to the banks to prevent the banks from taking Fannie Mae and Freedie Mac to court. Unfortunately the democrats who caused the problem by creating the CRA, got control of the government and instead of working with the banks they made the banks the scapegoat.
When the banks told the democrats that they were not beggars, but victims, the banks were told to shut up or the banks would be nationalized. Nationalization would mean Fannie Mae and Feedie Mac would not owe any bank in America anything. This means every homeowner in America faces a $20,000 loss. For self sufficient people the $20,000 is a real loss, but for the people who had the sub prime loans, it only means their bad credit rating gets worse.
Now the democrats that created the mess are asking banks to make more bad loans to solve the economic mess, but this time the democrats are not going to provide loan guarantees.
The banks should look Barney Frank right in the face and tell him the TARP money already received will be applied to the Fannie Mae and Freedie Mac debt. I don't thing Barney Frank will nationalize the banks, because it would wipe out the stock market and stop all international trade. Some might think that would be good, but America is not self sufficient either. If the flow of oil stops, millions die.
Lessons Learned
The most obvious lesson to be learned is that Socialism is a horrible concept. America started on the path of Socialism in the Roosevelt Administration. It grew into Civil Rights and there is now a concept that the government has a responsibility to provide health care /welfare for anyone that says they have a problem even if the problem is self inflicted due to too much wine, women and song (also known as the Atheistic Lifestyle).
Too much of what the democrats do is based on hope and not reality. Capitalism is lending money to people you expect will pay it back. Socialism is lending money to people you hope will pay it back.
The concept that government has a responsibility to provide anything to anyone is unconstitutional. The Constitution talks about the government providing protection but not services.
It may be reasonable for government to undertake large projects that could not be funded by private companies, but the government should contract for those projects and the projects should benefit at least 66% of the people instead of minorities.
Socialistic programs are very onerous to Christians because they are anti religious. Socialism is a dependence on the government instead of a dependance on God. A dependence on God leads to the Christian Lifestyle that is the most environmentally friendly socially responsible lifestyle that is possible.
Remedies
The government should eliminate any and all health care/welfare/socialistic programs because they favor the needy at the expense of the self sufficient. This would be a major problem for the self inflicted needy, but I believe the truly needy can be taken care of by Christian charity.
The government should be very careful about loan guarantees. In order to get banks to make risky student loans, the government allowed the banks to charge 9% interest on student loans which is almost impossible to pay off.
Capitalism is making loans to people you expect will pay back the loan.
Socialism is making loans to people you hope will pay back the loan.
The government should never accept the obligation of cleaning up a mess that a person has inflicted on themselves. Illegitimate children are a mess for the woman and all of society. It is horrible to think of the suffering of a child, but the child is the product of sin. It should be a criminal offence punishable by death for the parents to fail to financially support a child. The parents should be executed and the child put up for adoption or raised in an Christian orphanage that is contracted with the government.
The is a law whereby a business can just refuse to pay debts called "Commercially Impossibility" I believe we are in a situation where it going to have to be assumed that Fannie Mae and Freedie Mac are never going to pay anything back and figure out how to absorb the lost money. Maybe debt swaps and very long tax credits.
I have a feeling the mortgage backed securities are never going to be repaid (I am not even sure the interest on the securities is being paid). Probable best to send the title of property to the securities owners and let them decide to live in, rent or sell the property.
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