Subprime Suspects

Obama is getting a bump out of this because people are not being reminded of the whole history where the economy is concerned, and who did what when. Call it bias by omission. The media simply says that the economy is Obamas strong issue, but never discusses the facts in detail. Further, who had a majority when is rarely relevant. If the simplistic Party In Power model were true, then the Democrats would not have needed the House Republicans when they tried to pass the bailout bill, as Democrats have the majority in both houses and there is no threat of a veto. In theory, they do not need the Republicans to vote at all. In fact, something like twelve (12) Democrats from Barney Franks own banking committee voted against the bill. Obviously, it is not so simple and the media does the voter a disservice by doing little more than reinforcing the error. A similar argument would be to say that the economy appeared to be doing fine until the Democrats took over control of Congress and the power of the purse, then it tanked. As an aside, the media also misleads regarding the Clinton economy when they fail to mention that it also ended in a recession, requiring the first round of Bush stimulus checks immediately after he took office..


Do Obama and the Democrats deserve a lift in the polls as a result of the financial and mortgage problems? The answer from history is a clear NO. Here's the lead of a New York Times story on September 30, 1999:

"Fannie Mae Eases Credit To Aid Mortgage Lending" [link below]. That's 1999 folks. Clinton Administration, I believe.

Here's the lead of a New York Times story on Sept. 11, 2003:

"The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago. "[see link below] The Democrats killed the reforms.

McCain said in co-sponsoring the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190:

"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. The Democrats killed the Bill.

What was Barney Frank and fellow Democrats saying at the time of these attempted reforms? According to reports, Representative Barney Frank(D-MA) claimed of the thrifts :

"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."

Representative Mel Watt (D-NC) added of the reforms "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing." [ See Community Reinvestment Act, link bel

Even Bill Clinton points to Congressional Democrats failure to deal with Fannie and Freddie as a primary cause.

http://www.youtube.com/watch?v=XsynspIqAoE

The link below contains a purported list of the top 25 in Congress who got contributions from the folks at Fannie and Freddie. Obama is listed third, after Dodd and Kerry, even though Obama is just a junior Senator. Obama is followed next by Clinton. Barney Frank and Nancy Pelosi are on the list as well.

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20080918

Then there is the Senate Banking Committee Chairman Christopher J. Dodd who allegedly got special mortgage deals from Countrywide, who gave preferential rates to 'friends' of company's chairman.

http://www.msnbc.msn.com/id/25140560/

For an interesting article purporting to detail the House Financial Services Committee Chairs long history with Fannie Mae, See http://www.businessandmedia.org/printer/2008/20080924145932.aspx

"House Financial Services Committee Chair promoted GSEs while former 'spouse' was Fannie Mae executive."

The link below describes how some in Congress tried to use the original version of the bailout bill to divert money eventually recovered to groups like ACORN, a group Obama has a long association with. See:

http://online.wsj.com/article/SB122247015469280723.html?mod=googlenews_wsj

And then there is House Speaker Nancy Pelosi, who allegedly has directed nearly $100,000 from her political action committee to her husband's real estate and investment firm.

http://www.washtimes.com/news/2008/oct/01/pelosis-pac-pays-bills-for-spouses-firm.

See also:
http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20080918

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

http://article.nationalreview.com/print/?q=M2QwNDhkZTg2OGYzZjkzM2E2NDEwM2U5OGVkNTc0YzU=

http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

http://www.businessandmedia.org/printer/2008/20080924145932.aspx

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20080926

http://online.wsj.com/article/SB122247015469280723.html?mod=googlenews_wsj

Where is the article about Joe Bidens longstanding relationship with the credit card industry lobby? Is that what you call looking out for the middle class?

Scoop and Slam.
Blaming the working class, who are exploited daily by capitalism, is classic doublethink.
The bigoted narcissists that blame the poor for causing this crisis will be joining them soon enough...

Scoop and Slam.
Down go the narcissistic bigots who blame an inherent weakness of capitalism on the working class.
One of the most clear explanations of reality I have read until now.

1977: Pres. Jimmy Carter signs the Community Reinvestment Act into Law. The law pressured financial institutions to extend home loans to those who would otherwise not qualify. The Premise: Home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investment, jobs, etc
.
Results: Statistics bear out that it did not help.

How did the government get so deeply involved in the housing market? Answer: Bill Clinton wanted it that way.

1992: Republican representative Jim Leach (IO) warned of the danger that Fannie and Freddie were changing from being agencies of the public at large to money machines for the principals and the stockholding few.

1993: Clinton extensively rewrote Fannie Mae and Freddie Mac's rules turning the quasi-private mortgage-funding firms into semi-nationalized monopoies dispensing cash and loans to large Democratic voting blocks and handing favors, jobs and contributions to political allies. This potent mix led inevitably to corruption and now the collapse of Freddie and Fannie.

1994: Despite warnings, Clinton unveiled his National Home-Ownership Strategy which broadened the CRA in ways congress never intended.

1995: Congress, about to change from a Democrat majority to Republican, Clinton orders Robert Rubin's Treasury Dept to rewrite the rules. Robt. Rubin's Treasury reworked rules, forcing banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. The rating was key to expansion or mergers for banks. Loans began to be made on the basis of race and little else.

1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, then Secretary of Housing and Urban Developement, allowing Freddie and Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney Frank and Sen. Chris Dodd, congress doubled down on the risk by easing capital limits and allowing them to hold just 2.5% of capital to back their investments vs. 10% for banks. Since they could borrow at lower rates than banks their enterprises boomed.

With incentives in place, banks poured billions in loans into poor communities, often "no doc", "no income", requiring no money down and no verification of income. Worse still was the cronyism: Fannie and Freddie became home to out-of work-politicians, mostly Clinton Democrats. 384 politicians got big campaign donations from Fannie and Freddie. Over $200 million had been spent on lobbying and political activities. During the 1990's Fannie and Freddie enjoyed a subsidy of as musch as $182 Billion, most of it going to principals and shareholders, not poor borrowers as claimed.

Did it work? Minorities made up 49% of the 12.5 million new homeowners but many of those loans have gone bad and the minority homeownership rates are shrinking fast.

1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannie and Freddie's excesses. Congress held hearings the ensuing year but nothing was done because Fannie and Freddie had donated millions to key congressmen and radical groups, ensuring no meaningful changes would take place. "We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama advisor, bragged to investors in 1999.

2000: Secretary Summers sent Undersecretary Gary Gensler to Congress seeking an end to the "special status". Democrats raised a ruckus as did Fannie and Freddie, headed by politically connected CEO's who knew how to reward and punish. "We think that the statements evidence a contempt for the nation's housing and mortgage markets" Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton era for reform.

2001: Republicans try repeatedly to bring fiscal sanity to Fannie and Freddie but Democrats blocked any attempt at reform; especially Rep. Barney Frank and Sen.Chris Dodd who now run key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.

2003: Bush proposes what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago". Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed reform.

2005: Then Fed chairman Alan Greenspan warns Congress: "We are placing the total financial system at substantial risk". Sen. McCain, with two others, sponsored a Fannie/Freddie reform bill and said, "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". Sen. Harry Reid accused the GOP ;of trying to "cripple the ability of Fannie and Freddie to carry out their mission of expanding homeownership" The bill went nowhere.

2007: By now Fannie and Freddie own or guarantee over HALF of the $12 trillion US mortgage market. The mortgage giants, whose executive suites were top-heavy with former Democratic officials, had been working with Wall St. to repackage the bad loans and sell them to investors. As the housing market fell in '07, subprime mortgage portfolios suffered major losses. The crisis was on, though it was 15 years in the making.

2008: McCain has repeatedly called for reforming the behemoths, Bush urged reform 17 times. Still the media have repeated Democrats' talking points about this being a "Republican" disaster. A few Republicans are complicit but Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats. That's why taxpayers are now being asked for $700 billion!!
________________________________________

Posted elsewhere by: BryanW (October 7, 2008 at 5:14 PM)

Whoops, sorry for the double post.

To those folks who took out 100% financing to buy houses that they couldn't afford and are now deeply underwater: Congratulations! You've won a special Government lottery where other folks in this fine land of ours who were careful with their money and didn't overextend themselves, are going to GIVE YOU tens -- maybe hundreds -- of thousands of dollars to pay down the principal on your mortgage! I know you're an innocent victim in all this and didn't really understand money managment and all that other complicated stuff, but suffice to say, you are lucky recipient of the largesse of the US Treasury and can expect this relief without fear of receiving a 1099 for your forgiven deficiency! That's right, there absolutely NO CONSEQUENCES for you! Now go back to watching American Idol.

To other rest of you chumps, er, I mean taxpayers, who didn't buy stuff they couldn't afford, please fasten your seatbelts and prepare for confiscatory inflation and other, more insidious, forms of wealth redistribution. Take heart in the coming spectacle of bank executives being (metaphorically) executed! See, don't you feel better? All the bad guys were punished and world is right again. Now get back to work, someone has to pay for this...

Mr. Gross, you have a few valid points here and a lot of total wrong assertions. The "right", however you define that, has never said the fault of this crisis is the poor. I certainly have not heard or read this and I read a wide variety of news media. Indeed there are many folks defaulting on multimillion dollar homes. However the beginning of this crisis can be directly traced to Jimmy Carter, Bill Clinton, and countless others when CRA was formed. Good intentions do not always end in good results. This was seen clearly by Warren Buffet who called this a Weapon of Mass Destruction for the U.S. economy. One does not loan money to those who are very unlikely to be able to repay it no matter how good their intentions may be. Why else do you think lending institutions do a credit check and anyone can see their credit score on line? Oh yes there were many lying, SOBs who took advantage of those taking out home mortgages. Hasn't this always been true for all of man's history? We are each responsible singly and individually for our own decisions in life. It is called personal responsibility. No laws, regulations, or declarations can save one from their own stupidity. I happen to know and am unfortunatley related to some of these folks who now want someone else to save them from really stupid decisions they made. The "right" is no more to blame than the fools who took out ridiculous loans. There is plenty of blame to go around 360 degrees. Let's find a solution and throw into a dark hole all those who deliberately misled/lied about their finances. That include both rich and poor.
Don Ketter

10% of each bank was sub prime max.

The rest was paper money, spent by Mr. and Mrs. Jones out of their home's ever growing equity. Many of you here traded up no doubt. Looked good on paper didn't it? So does the World Series. That's why we play the game.

You want to know the real problem? The perception that real estate grows 10% every year? Ever been to Texas? There are properties there that have not gained value since 1980 and the Iran Oil crisis. South Bend Indiana, home of Notre Dame, a DECLINING MARKET. If you bought there, you loose money.

Now, we ALL loose money.

WHO CREATED AND DESIGNED A.R.M. MORTGAGES??? FREDDIE AND FANNIE??? NO. FREDDIE AND FANNIE WERE TO GIVE AN IMPLICIT GUARANTEE FOR LOANS MADE TO LOW INCOME PEOPLE. THEY DID NOT SET THE TERMS OF THE LOANS......THE MILLIONS OF SUBPRIME LOANS THAT WERE MADE AND REPACKED BY UN-REGULATED HEDGE FUNDS AND INVESTMENT BANKS WERE VALUED AT A PRICE WHEN THE HOUSING MARKET WAS HIGH.......THE BUBBLE BURST WHEN THE NUMBER OF EXISTING HOMES HIT 11 MONTHS. PRICES FELL AND ALL OF THOSE EXOTIC FUNDS THAT WERE VALUED WHEN THE MARKET WAS HIGH NOW SAW PRICES PLUMMET......NO TRANSPARENCY........DEREGULATION ....THAT IS A REPUBLICAN PHILOSOPHY......AND THEY ACTIVELY SOUGHT TO RESTRICT THE REGULATION OF HEDGE FUNDS AND INVESTMENT BANKS.

I mean, it sounds to me like all of the jobs are overseas and supposedly health care is better everywhere but in the United States - I hear that it's free in some countries. So what is everybody waiting on?

Comment: What sub prime problem?

Look at WAMU's loss writedowns before they sold to JPM.

Out of 176 Million in bad loans: 60 million were home equity lines, 50 million were standards loans to prime custormers, 50 million were alt a loans to prime customers, and ONLY 16 MILLION WERE TO SUB PRIME customers. What SUB PRIME PROBLEM. That's a GREED problem in good ole' CANF. California, Arizona, Nevada and Florida. CANF ever have enough can you?

When our government decided that it was a right for every American, regardless of their economic standing, to own a home, the mortgage industry eagerly hopped on board that train. The sub-prime lenders went after buyers with questionable credit, limited resources, etc. What? No money for a downpayment? Not a problem. Here's a program that will gift you your downpayment. You don't have money for closing? Not a problem, we'll just increase the purchase price, add a 2nd loan and wrap up those closing costs into your mortgage. Let's not even talk about the interest only or some of the ridiculaous ARM products that were out there. Stated Income? No Doc Loans? If you wanted a house bad enough, there was a lender out there who was going to get you a loan. Some programs required that you take a homeowner education class...but guess what...no one was checking to see if these folks could really afford the loans they were being sold.

In laying blame, number one on my list are the lenders who for whatever reason did not practice good oversight or underwriting practices. Right below them though are the folks who failed to remember that if it sounds to good to be true, it usually is. The wealthier folks speculated on investment properties, driving up housing prices with such a high demand for homes. THe more economically challenged, got sold a bill of goods. There is enough blame to go around.