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.
Saturday, March 28, 2009
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.
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