Both Sides of the Financial Crisis [FR mentioned]

The American Spectator ^ | 10/03/2008 | By Lawrence Henry

[Jim Robinson]

Of late, at least in conservative quarters, reports have made clear how much of the current financial crisis may be laid at the feet of Democrats and their social engineering policies.

Jeff Jacoby, the lone conservative columnist at the Boston Globe, wrote Sunday, "Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so -- or else."

Charles Hurt, in his "Inside Washington" column in Monday's New York Post, wrote, "It's not that taxpayers refuse to dig deeper to avoid an even bigger catastrophe. It's that they're all puking over the notion that it's the same bums in Washington who caused the mess by allowing it to fester who are now demanding their money to fix it." Last week, the website Free Republic posted a 1999 story from the New York Times, detailing how the Clinton administration implemented policies at Fannie Mae and Freddie Mac to encourage home loans to people with low credit worthiness. It all came under the rubric of encouraging "minority home ownership" and "ending redlining."

Free Republic crashed, whether because of overloading or sabotage. I got the story when a money manager circulated the whole text.

The next to last paragraph of that story makes clear how the mortgage pool deteriorated, and why it deteriorated so fast:

[newzjunkey]

BTTT.

[ForGod'sSake]

Can you believe that, 50%? Amazing.

FWIW, I'm fairly certain I saw a chart recently either here or on the web that showed Fannie's exposure was, get this, 65% of their MBS's in subprime and Alt-A(between subprime and prime) loans. Lota shirt tail blowin in the breeze.

[DoughtyOne]

The very idea of this is so against the grain to me. It’s shocking. How could we allow that? Heck, our government encouraged it. Those who think our government leaders are trying to sabotage this nation, have a very good case study here.

[roaddog727]

Woo Hoo hoo!

bumperoo!

[saganite]

What surprises me is that reporters (and I use that word loosely) think they’ve just discovered something new. All that’s required to uncover this mess is 5 minutes with google or Lexis-Nexis. The genesis of this mess could have been discovered (and was on FR) weeks ago.

[XHogPilot]

http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-democrat-fingerprints-are-all-over-the-financial-crisis-949653.html

[xzins]

And that 44% was during the inflation of housing prices during the housing bubble. $100,000 homes were going for 200-300-400 thousand.

The bottom line is that these homes, now that the inflationary bubble has burst, can NEVER be resold at their selling price.

Not only were we requiring that low income folks receive loans, but we were allowing them to qualify for grossly over-priced homes through interest only loans.

It’s like selling a poor man a $12,000 Ford Focus for $60,000 and sucking him in by saying he has only a $50 payment for 2 years. The Fed comes to the bank and says, “You’ve got to give him the loan or you’re discriminating....and look...he can afford the payment.”

Who’s on the line for that Focus? It isn’t the poor man. He’ll default when the real payment comes due. The bank is on the line. They’ll never, ever be able to get 60,000 out of a 12,000 dollar car.

[ForGod'sSake]

How could we allow that? Heck, our government encouraged it.

Yes indeedy. Bent Willey and the Dim congress stepped in and applied their superior intellect to "improve" a "fix" to a problem that didn't exist. This is their MO. This is what socialists do. They know better than hard-nosed business people how to run their businesses. They know better than the people in the trenches every day how to dig a ditch. At the root of their control freak mentality is pure unadulterated arrogance. Anyway, we could all go on for a long time about the hubris of our leaders in DC without addressing the reason these idiots are there in the first place. A manipulated and uninformed electorate, lazy and apathetic to its core is why these morons are in DC dragging this country, barely kicking and screaming, into the abyss.

Those who think our government leaders are trying to sabotage this nation, have a very good case study here.

You've heard the expression, "Never attribute to malice that which could best be explained by stupidity". I think there's a fair portion of both. My God, it distresses me to no end to realize we are leaving the hollow shell of a once great nation to my grandkids.

[Liz]

FRANKLIN RAINES Letter to Shareholders----2003 Fannie Mae Annual Report

FR Posted on 09/30/2008 by PAR

EXCERPT ...Ten years ago, for example, the typical conforming mortgage required a down payment of 10 to 20 percent, and low-down payment mortgages were considered too risky. But then we helped to standardize the 3 to 5 percent down payment loan, brought it to global capital markets, and made it available to lenders and communities nationwide. Now low-down payment loans are commonplace. And we just adopted a new variance in our underwriting standards that will make the $500 down payment loan widely available as well...

In 1994, we pledged to provide $1 trillion in capital to ten million underserved families by the end of 2000. Thanks to our housing and industry partners, we met that goal early. Then in 2000, we launched our American Dream Commitment, a pledge to provide $2 trillion in capital to 18 million underserved families by the year 2010, including $400 billion targeted specifically for minority families (later raised to $700 billion in response to President Bush’s Minority Homeownership Initiative). After four of the strongest years in housing and mortgage finance history, we’ve already surpassed the top-line goals of this commitment. But our work is far from complete.

So in January 2004, we announced our Expanded American Dream Commitment and pledged significant new resources to tackle America’s toughest housing challenges. Our new commitment has three main goals.

First, we will expand access to homeownership for six million first-time home buyers in the next ten years, including 1.8 million minority first-time home buyers.We also will help raise the national minority homeownership rate from 49 percent to 55 percent, with the ultimate goal of closing it entirely.

Second, we will help new and long-term homeowners stay in their homes through a series of initiatives, and commit $15 billion to preserve affordable rental housing and $1.5 billion to support the revitalization of public housing communities.

Third, we will increase the supply of affordable housing and support community development activities in at least 1,000 neighborhoods across the country through our American Communities Fund, and through targeted investments like Low-Income Housing Tax Credits that help finance affordable rental housing.

It is because of initiatives like our Trillion Dollar Commitment and our American Dream Commitment that we have exceeded our HUD affordable housing goals for ten consecutive years. And we have increased our financing of mortgages to African Americans by over 400 percent and to Hispanic Americans by 470 percent in the past ten years, compared with a 205 percent increase in overall financing. Our Expanded American Dream Commitment will help us do even more.

[Liz]

FR POSTED http://www.freerepublic.com/focus/news/2086744/posts?page=1 CIRCA 2004, with 2006, 2008 updates.

RAINING MONEY - Franklin Raines fired for cooking the books---walks away w/ $90 million tax dollars

Franklin Raines reigned for 5 years following Clinton's appointing him as CEO of Fannie Mae, the US' quasi-governmental mortgage house, has now been ousted.

There are several ongoing investigations of Fannie Mae's operations and accounting practices covering the last 5 years in order to determine when accounting irregularities started and the magnitude of the financial shortfalls. Current estimates indicate that there was a $9 billion misstatement of earnings and accounting irregularities between 2000-2004.

(POSTER'S NOTE: Can you say offshore wire transfer?)

Former chief executive Franklin Raines received more than $40 million in bonuses and other pay as a result of falsely inflated earnings at the US' largest mortgage finance company. This is according to a supplement of a lawsuit filed by Ohio Attorney General Jim Petro. Fannie Mae added "tens of millions of false revenue" to meet "Raines' 1999 publicly announced goal to double" earnings over the next five years, Petro's November 23, US District Court in Washington alleges. The filing alleges that, "Raines personally profited by over $40 million by this false earnings history.

Update -- 2/22/2006: Former Senator Warren Rudman's team of investigators and auditors selected from his law firm, Paul, Weiss, Rifkind, Wharton & Garrison, and from Huron Consulting Group presented their 600-page report calling Fannie Mae's accounting systems "grossly inadequate." It is based on a review of millions of documents.

The report found that accounting obfuscations were intended to increase stock valuations, thus increasing executive bonuses.

Raines was one of the most influential and politically savvy figures in Washington is identified by the Rudman investigation as not directly knowing that Fannie Mae's accounting practices violated rules. The report does state, "We did find, however, that Raines contributed to a culture that improperly stressed stable earnings growth and that... he was ultimately responsible for the failures that occurred on his watch".

Raines will continue to live well being supported by Fannie Mae's shareholders. Some relevant facts include:

-- Raines and his wife will be paid $114,393 a month as long as they live.

-- Stock options: Raines holds vested stock options worth roughly $5.7 million.

-- Stock bonuses: Raines was granted awards, payable in stock, for reaching performance goals. Under the program, he got 69,577 shares... half of what Fannie determined he should receive in January. At Monday's close, the shares are worth $4.9 million. It is unclear if he will receive the rest.

-- Deferred pay: For tax planning while employed by the company, Raines was allowed to put off the receipt of payment. These deferred past payments total $8.7 million

Future salary: Although Fannie Mae says Raines' retirement was effective December 21, 2004, he is seeking to have it effective as of June 22, 2005, and thereby receive $600,000 more in pay.

Mr. Raines followed a well-worn path in the United States during the later half of the 20th century. His humble beginnings were in Seattle. He won a scholarship to Harvard and was a Rhodes Scholar at Oxford. He worked on Wall Street for over a decade in the prestigious firm Lazard Freres. He was a member of President Clinton’s cabinet and director of his Office of Management and Budget. In 1999, Clinton selected him for the position of Fannie Mae CEO.

Following revelations of the financial scandal, Mr. Raines took early retirement from Fannie Mae so that he could collect a compensation package including $1 million per year for life and $11 million in vested stock. In 2003 Mr. Raines was paid $20 million in salary and bonus.

Fannie Mae is facing criminal investigations by the Justice Department, operational investigations by the SEC, and various Congressional investigations. There are questions regarding earnings statements being incorrectly inflated. In 2003, if derivative and other losses had been included, no bonuses would have been paid to top executives. However, deferral of the losses allowed declared earnings to reach a level which triggered maximum executive bonuses.

It is a far stretch to imagine that Franklin Raines actually was capable of satisfying the requirements of the positions he held from Harvard to Director of the White House Office of Management and Budget. If he had been competent enough to hold those positions, how could he have been Fannie Mae's CEO for 5 years and allowed, not known about, or not understood that $9,000,000,000 was being mishandled.

===============================================

9/26/08 UPDATE: LA grand jury probing Countrywide VIP loans
LAtimesblogs via WSJ ^ | September 25, 2008 | Peter Viles

FR Posted on 09/26/2008 5:50:44 AM PDT by stockpirate

The Wall Street Journal reports that a federal grand jury in Los Angeles is investigating the so-called "Friends of Angelo" loan program at Countrywide Financial, under which influential borrowers received preferential terms on home loans. The reported borrowers under the program have included U.S. Sen. Chris Dodd (D-Conn.), former Fannie Mae Chief Executive Franklin Raines, and California state appeals court judge Richard Aldrich. (Excerpt) Read more at latimesblogs.latimes.com ...

[DoughtyOne]

I don’t like what I’m seeing either. Our government seems to be a real mess. Right now they are lining up to blame all these problems on problematic CEOs, when they themselves forced this mess upon them.

That honestly makes me angry. It’s one thing for the socialist idiots to demand something that crashes our financial markets. It’s another for them to then blame someone else on penalty of law.

[TEXOKIE]

A belated thanks for the link to that thread!

[longtermmemmory]

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 improvepoor 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 thatFannie and Freddie were changing from being agencies of the public atlarge to money machines for the principals and the stockholding few. 1993: Clinton extensively rewrote Fannie Mae and Freddie Mac’s rulesturning the quasi-private mortgage-funding firms into semi-nationalizedmonopolies dispensing cash and loans to large Democratic voting blocks & handing favors, jobs and contributions to political allies. This potent mix ledinevitably to corruption and now the collapse of Freddie and Fannie.

1994: Despite warnings, Clinton unveiled his National Home-OwnershipStrategy 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-primeand minority loans to get a satisfactory CRA rating. The rating was key toexpansion or mergers for banks. Loans began to be made on the basis ofrace and little else.

1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, thenSecretary of Housing and Urban Developement, allowing Freddie and Fannieto get into the sub-prime market in a BIG way. Led by Rep. Barney Frank & Sen. Chris Dodd, congress doubled down on the risk by easing capital limits andallowing 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 theirenterprises boomed. With incentives in place, banks poured billions in loans into poorcommunities, often “no doc”, “no income”, requiring no money down and noverification of income. Worse still was the cronyism: Fannie and Freddie becamehome to out-of work-politicians, mostly Clinton Democrats. 384 politicians gotbig campaign donations from Fannie and Freddie. Over $200 million had beenspent on lobbying and political activities. During the 1990’s Fannie & Freddieenjoyed a subsidy of as much as $182 Billion, most of it going toprincipals and shareholders, not poor borrowers as claimed. Did it work? Minorities made up 49% of the 12.5 million new homeownersbut many of those loans have gone bad and the minority homeownership rates areshrinking fast.

1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannieand Freddie’s excesses. Congress held hearings the ensuing year but nothingwas done because Fannie and Freddie had donated millions to key congressmenand radical groups, ensuring no meaningful changes would take place. “Wemanage our political risk with the same intensity that we manage our credit andinterest rate risks,” Fannie CEO Franklin Raines, a former Clintonofficial and current Barrack Obama advisor, bragged to investors in 1999.

2000: Secretary Summers sent Undersecretary Gary Gensler to Congressseeking an end to the “special status”. Democrats raised a ruckus as didFannie and Freddie, headed by politically connected CEO’s who knew how to rewardand punish. “We think that the statements evidence a contempt for thenation’s housing and mortgage markets” Freddie spokesperson Sharon McHale said. Itwas the last chance during the Clinton era for reform.

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

2003: Bush proposes what the NY Times called “the most significantregulatory overhaul in the housing finance industry since the savings andloan crisis a decade ago”. Even after discovering a scheme by Fannie and Freddie tooverstate earnings by $10.6 billion to boost their bonuses, the Democratskilled reform.

2005: Then Fed chairman Alan Greenspan warns Congress: “We are placingthe total financial system at substantial risk”. Sen. McCain, with twoothers, sponsored a Fannie/Freddie reform bill and said, “If congress does not act,American taxpayers will continue to be exposed to the enormous risk thatFannie Mae and Freddie Mac pose to the housing market, the overallfinancial system and the economy as a whole”. Sen. Harry Reid accused the GOP ;oftrying to “cripple the ability of Fannie and Freddie to carry out their mission ofexpanding homeownership” The bill went nowhere.

2007: By now Fannie and Freddie own or guarantee over HALF of the $12trillion US mortgage market. The mortgage giants, whose executive suiteswere 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 marketfell in ‘07, sub prime mortgage portfolios suffered major losses. Thecrisis was on, though it was 15 years in the making.

2008: McCain has repeatedly called for reforming the behemoths, Bushurged reform 17 times. Still the media have repeated Democrats’ talking pointsabout this being a “Republican” disaster. A few Republicans are complicitbut Fannie and Freddie were created by Democrats, regulated by Democrats,largely run by Democrats and protected by Democrats. That’s why taxpayers are nowbeing asked for $700 billion

[Tribune7]

Both sides play gub policies from the ‘90s it seems.

[Tribune7]

Both sides BLAME gub policies from the ‘90s it seems.

[Liz]

1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, then HUD Secy, allowing Freddie/Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney Frank & 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......the enterprises boomed......banks poured billions in loans into poor communities, requiring no money down and no verification of income.

Rumors still abound that Cuomo (now NY AG and angling for the governorship) profited bigtime with all the inside information.

Could be Cuomo was the facilitator to make sure Clinton and the Boys all got their cut of the blizzard of $billions........wire transfers musta been going offshore 24/7.

[Grampa Dave]

Great post, Jim.

A pop quiz for the quizzlings, who want to blame the Fannie/Freddie Scamgates on Republicans;

Who was president in 1999:

1. George Bush

2. Bill Clintoon

3. GW Bush

[Grampa Dave]

In 2006 some really wise so called republicans/conservatives* decided that we needed to "teach the country a lesson" by handing power over to the Dem/Commies, assured that the resulting shambles would bring about the next great conservative revolution. We got the shambles all right, but somehow, no one seems to make the connection as to who got us here.

If those brilliant peoples's minds* were right, the Dems should be cowering in hidey-holes like Sadaam for fear of the public's retribution. Instead, they are poised to destroy America once and for all.

Nancy to Barney and Harry, "As long as we control the mediots and so called conservatives, who suffer from BDS and blame Bush for everything, we elite/rich/white liberals in Congress will have no problem. Just remember everything is Bush's fault! Heh! Heh!"

*Now the same idiots filled with same bs, want Sarah and John to lose to really teach America a lesson.

[PhilDragoo]

[BOBTHENAILER]

Nancy to Barney and Harry, "As long as we control the mediots and so called conservatives, who suffer from BDS and blame Bush for everything, we elite/rich/white liberals in Congress will have no problem. Just remember everything is Bush's fault! Heh! Heh!"

Excellent post GD. There has been so much PURITANISM going around, that the left has seeped into all the cracks left open by the my way or the highway crowd. In the meantime, we're faced with a potential loss that will change the face of this country for at least a decade.

Maybe then we'll find out if these true conservatives"; you know, the ones wishing for the cleansing of the ranks in order to get to political purity, are truly ready, willing and able to step into the breach and reverse the destruction.

That will be the only course left to us after the leftist enemies of freedom and this Republic get finished with their plans to destroy America.