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Hey Dems, Read & Weep!!!

Mike

Well-known member
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What Led to the Current Mortgage Crisis and Economic Meltdown
Hawaii Reporter ^ | 9/30/2008 | Don Newman


There have been a number of explanations put forth in both the mainstream media and on the internet that attempt to explain the current financial sector meltdown and the mess with Fannie Mae and Freddie Mac but none that really ties the whole story together. This is really a story that traverses many decades and numerous actions taken by government that eventually created this crisis. I will attempt to lay out the full timeline in this piece.

The Community Reinvestment Act (CRA) which was passed in 1977, required banks and savings and loan associations to offer loans throughout their entire market area, an effort to end the practice known as “redlining.” Redlining was thought at that time to be entirely racially based and failed to take into account the ability of the borrowers to pay. People in poor neighborhoods normally cannot afford home loans. This is simply a fact of life.

The enforcement of the CRA was rather lackluster until 1993 when the Clinton Administration sought to strengthen CRA rules to increase the number of home loans to “distressed” areas. The Secretary of the Treasury at that time was Lloyd Bentsen who said, “In a nutshell, what we're proposing to do is to make it easier for lenders to show how they're complying with the Community Reinvestment Act.” The translation of this really means, “We want to make sure that banks are making home loans in communities to people who cannot afford them.”

In his opening remarks in the press briefing he also said, “I want to briefly tell you about it and how it fits into the Clinton administration's initiatives for change.” Initiatives for change. Sound familiar?

Bentsen also had an eerily familiar remark, “We promised we were going to get rid of the duplicative regulation in our financial institutions, and we've developed legislation to accomplish just that. We said the Clinton administration was going to get money flowing into community development financial institutions, and we're doing just that.”

I want you to remember that phrase about “duplicative regulation” later on, as I will refer to it later.

U.S. Attorney General Janet Reno set the tone for what was to come, “For those who thumb their nose at us, I promise vigorous enforcement,” she warned.

In 1995 the Clinton Administration implemented these revised regulations. Banks were under pressure to increase the number of small business and home loans in disadvantaged areas. Some companies, such as Countrywide Financial Corporation were happy to comply. These loans were known as “subprime” and were backed by securitization.

Securitization is a fancy term that means many loans were bundled together into a single package and sold much as common stocks are sold. The idea is that long term debts, such as mortgages, are assets that will produce long term returns. Since the assets are not tangible, not physical objects, but are intangible, i.e., loans, they are sold as “securities” not as stocks. But in the final analysis they are pretty much the same.

One of the first companies to start dealing in these subprime mortgage securities was Bear Stearns. (That name ring a bell?)

Thus the number of such subprime and what are known as Alt-A loans began to skyrocket in comparison to traditional loans. These loans were made without the usual level of capital backing required for regular banks (10 percent) when they were sold to Fannie Mae and Freddie Mac (2.5 percent).

In 1997 Jamie Gorelick was appointed Vice Chairman of Fannie Mae even though she had no training or experience in financial matters. This was the same Jamie Gorelick, as Deputy Attorney General under Janet Reno, that implemented the so-called, “wall of separation” that prevented the United States Attorney from compiling information from the Office of Intelligence Policy and Review, which included the CIA, with information gathered by the FBI and state police agencies. This was in response to the bombing of the World Trade Center by Sheik Omar Abdel-Rahman in 1993.

As a result of this “wall of separation” the identification of Zacarias Moussaoui was thwarted which could have identified him as a member of the Al Qaeda group planning the 9/11 attacks. The one opportunity to prevent the 9/11 attacks was thus blocked. Gorelick was later appointed to the 9/11 commission investigating the events of that fateful day but this is preposterous since she, herself, was instrumental in the failure that led to the disaster in the first place.

Jamie Gorelick served as Vice Chairman of Fannie Mae until 2003.

By 1992 Fannie Mae loans consisted of 51.5 percent that served low- and moderate-income families; 32.5 percent served underserved areas, and 21.6 percent served special affordable housing. This was because HUD increased Fannie Mae's goals for each category, raising the low- and moderate-income goal from 42 percent to 50 percent; the underserved goal from 24 percent to 31 percent; the special affordable goal from 14 percent to 20 percent; and the multifamily minimum in special affordable financing from $1.29 billion to $2.85 billion. Fannie Mae exceeded the goals in each category.

What needs to be born in mind is that the financial officers of Fanny Mae and Freddie Mac were awarded huge bonuses for reaching or exceeding these targets. This explains the statement by Franklin D. Raines, Chairman and CEO of Fannie Mae, "In 2001, Fannie Mae seized on housing's best year in history to bring affordable housing to lower-income families, minorities and other Americans who've been overlooked, underserved and overcharged." Raines would eventually go on to take down $90 million in bonuses before he had to step down for faulty accounting practices (also known as cooking the books – but we are getting ahead of ourselves).

By 2001 some people were beginning to see the problem. The Bush Administration's 2002 fiscal year budget stated that: “the size of Fannie Mae and Freddie Mac is a potential problem, because financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

In 2003 the pressure was really building to do something about Fannie Mae and Freddie Mac, but Democrat congressmembers would have none of it. In face of recommendations by the Bush Administration for reforms, regulations and oversight of Fannie and Freddie Representative Barney Frank of Massachusetts stated: “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."

This has been the Democrat party line ever since. More sensible people have been saying otherwise. In May 2005 Senator John McCain spoke about legislation he co-sponsored creating more oversight for Fannie Mae and Freddie Mac:

“For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”

This legislation was torpedoed by Connecticut Senator Chris Dodd, Rep. Barney Frank, Sen. Chuck Schumer and other Democrats. Although the upcoming crisis was nearly perfectly predicted by Senator McCain they weren’t interested in hearing it.

Now that the meltdown has occurred the same congressmen who blocked any attempts to institute reform and regulation over Fannie Mae and Freddie Mac are blaming “free markets” and a lack of regulation for the disaster. But the record shows that nothing could be further from the truth. It was the insistence that government regulations control who got loans, whether they could afford them or not that created the problem. This was the “duplicative regulation” that resulted in this mess. There were regulations alright, but they were all in the wrong direction.

There are two contributory factors to this debacle that must be noted in order to understand the speed and intensity of the meltdown.

First is the sloppy monetary policy of the Federal Reserve. It was no accident that the stock market crash of 1929 came a mere 16 years after the creation of the Fed in 1913. The late 1970s stagflation which was quickly cured by the sound Fed. policies of Paul Volcker also demonstrate the opposite case.

The creation and subsequent burst of the high tech bubble, the commodity markets and eventually the mortgage markets are all due to faulty prime interest rate proclamations by the Fed. In reality the Federal Reserve should not exist and interest rates should be determined by the market. Had this been the case the financial crisis we face now would not have come about.

Artificially holding down interest rates in order to spur growth has the unintended consequence of inducing unwise and foolish investments, since credit is so cheap. In the case of the stock market, investing in risky stocks and in the case of commodities, buying for speculation items such as pork bellies, concrete, steel, copper or oil. The speculation in the oil markets that drove up oil and gasoline prices is a direct result of the anticipation the prices will continue to rise because of the easy availability of credit.

Eventually, as each bubble burst, it eventually found its way to the housing market. People who had no justifiable reasons to buy houses were induced to do so because of the Fannie Mae, Freddie Mac mandates. This ties all the way back to Attorney General Janet Reno’s promise, “For those who thumb their nose at us, I promise vigorous enforcement.”

The second contributory factor is the Federal law known as the Sarbanes-Oxley act. This required lending institutions (among other equally foolish rules) to value assets held for what they are currently worth on the current day. When mortgage loans were written at the height of the bubble they were valued at that current price, as the housing market collapsed the portfolios became worthless even though they would probably be worth much more in the future when the market recovered.

This is what drove Fannie Mae, Freddie Mac, Indymac, Washington Mutual and so many others in the past, and yet to come, to bankruptcy. In each and every case it is the morass of congressional laws and regulations that have created this situation, that so many call a crisis. But the cause is not the lack of regulation, the free market or capitalism.

And this is the real point of this missive. Sen. Chris Dodd, Rep. Barney Frank and House Leader Nancy Pelosi are all saying in news conferences that Democrats had nothing to do with this financial market meltdown when their fingerprints are all over it. It was created, orchestrated and imposed by these and other Democrats. They are either ignorant, forgetful, or (shall I dare say it?) lying.

One thing is clear, the current turmoil in the mortgage and financial markets is not due to unregulated capitalism. Nor is it due to the “failed policies of the last eight years” as one presidential contender labels it. It is due to decades of liberal/socialist Democrat policies that sought to provide goods and services to people who could not afford them, in order to buy votes. This is the real and true bottom line.

The upcoming election is going to be a referendum on whether we are going to keep electing the same people who have proven they have no idea how economics works or electing leaders who do. This latest financial crisis is a perfect instructive lesson between the two. The question is whether people are going to believe ABC, CBS, NBC, CNN, the New York Times and the rest of the mainstream media or are going to learn to think for themselves.

It is up to you. Spread the word.
 

Mike

Well-known member
OldDog/NewTricks said:
So Much BS

You're quite welcome to try and contradict anything you read.

Come on...give it up!!! Let's see what you really know!

Bring some facts to the contrary!!!!!!!!

Waiting.................................. :roll: :lol: :shock: :lol: :roll:
 

Ben H

Well-known member
It truly is a bunch of BS, it's BS that we have allowed the left to try to destroy this country with their social ideals, because "it's the right thing to do."
 
A

Anonymous

Guest
Sure ain't what Senator Lindsey Graham said in his speech in the Senate before the vote....He said its an entire era of nonregulation brought on mainly by the passage of the Gramm-Leach-Bliley Act which took away all the regulation we learned was necessary from the bank failures of the Great Depression--changes in banking laws along with a wide open period of interest free money- and folks that were not watching what was happening in their own industry.....

Don't you hate that when a Repub is honest instead of spinning it.... :wink:
 

kolanuraven

Well-known member
Ben H said:
It truly is a bunch of BS, it's BS that we have allowed the left to try to destroy this country with their social ideals, because "it's the right thing to do."


Question:


If the" left" destroyed this country....what do call the state we're in now due to Bush and his MANY failings?


Man, you sure measure different than most of America as Bush's approval rating is something like 75% AGAINST him
 

Ben H

Well-known member
Still not as bad as the congressional approval rating, who has the majority? Oh that's right, it's the Democrats. How about the approval rating of the speaker of the house?
 

TexasBred

Well-known member
kolanuraven said:
Ben H said:
It truly is a bunch of BS, it's BS that we have allowed the left to try to destroy this country with their social ideals, because "it's the right thing to do."


Question:


If the" left" destroyed this country....what do call the state we're in now due to Bush and his MANY failings?


Man, you sure measure different than most of America as Bush's approval rating is something like 75% AGAINST him

That's still 200% higher than the rating of the liberal democrat controlled congress.
 
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