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But I Thought It Was Just A "Panic"?
Market Ticker ^ | 9/13/2009 | Karl Denninger

Posted on 09/13/2009 7:55:00 PM PDT by HangnJudge

Remember, the values at which subprime mortgage bonds were trading at reflected "irrational fear" and "unreasonable expectations of default."

More than a year later, it is clear: There was no panic; this was a JUSTIFIED level of trading and reflects the ugly reality - the investors in those bonds will NEVER get their money back.

They were swindled, to be blunt. "AA" bonds trading at 4 cents and "AAA" at 28? Remember folks, "AAA" credits are supposed to have a probability of default roughly equivalent to that of the Sun colliding with the earth.

There is not now and never was a "liquidity" problem. The problem is, has been, and continues to be a bankruptcy problem. Individuals, corporations and even governments are in fact insolvent. Most banks are and were insolvent.

Governments around the Western World have refused to do what the law demands, at least in the US: Recognize bankruptcies and resolve them. The law in the United States does not permit such hiding of losses, at least in theory, among the banking sector. "Prompt Corrective Action" demands that delinquencies be recognized and corrective actions mandated prior to insolvency occurring.

This was not done, and now we have a massive cover-up engaged in by The Fed, by Congress and by The Executive, pouring trillions of dollars of "new credit" into a black hole in a desperate attempt to avoid recognition of that which I and a handful of others outlined and proved back in 2007: these institutions are in fact bankrupt, investors were swindled, and tens of thousands of people in the "industry" should be sitting behind bars doing hard time for fraud.

(Excerpt) Read more at market-ticker.org ...


TOPICS: Business/Economy
KEYWORDS: market; ticker
...Further into article...

We have been given a gift - a six month (up to now) to couple-of-year (maybe) time frame in which to recognize the truth, break up these behemoth organizations, force the bad debt into the open, default it, make depositors whole and in doing so place our economy on a trajectory where debt-to-gdp will shrink to a sustainable level.

If we fail to do so before the rope runs out - and it will - our economy will collapse. The Federal Government will be forced to contract spending to what it can raise via taxes in the current economic climate - about half of what it spends now. Given our budget and where we spend money, this means a near-complete repudiation of Social Security and Medicare, a 50% or more cut to the military budget, and an elimination of all other federal programs. Unemployment will rocket to north of 25%. Our "just in time" economy will break down and there will be widespread, perhaps even critical, shortages of necessities - food and fuel.

To those who think this can't happen: it can. It has before to other nations, including Argentina.

To those who think that admitting to the losses and taking our medicine can be avoided forever: it can't. Exponential growth cannot be maintained in a finite system indefinitely. That is a mathematical impossibility.

To those who think that "incremental changes" will fix this: they won't. Never mind that all the "incremental changes" we've made thus far are in fact going the wrong way - toward more indebtedness, not less.

As time goes on we see that more and more of the so-called "irrational" valuations that the market placed on these securities more than a year ago were in fact conservative. The FHA now is reporting close to 8% of all the loans it guarantees are either in default or foreclosure; that number would be dramatically higher were it not for the insane step-up in issuance over the last year. In essence the FHA is trying to paper over its own insolvency by madly issuing more and more loans, as those can be claimed "current" for a short while - until they default.

"Desktop Underwriting", that is, the FHA's computer-based loan authorization system, is reportedly accepting loans with a 64% debt-to-income ratio. This is blatantly beyond safe and sound limits as the borrower is essentially assured to have a negative free cash flow after paying income taxes. (The maximum SAFE DTI, established over more than 50 years of practice, is 36%.) This purchaser funded a near-$300,000 house with $25,000 in annual income. Yes, that loan received formal "underwriting approval."

The fraud that used to be "stated income" in housing is still going on, now with the explicit blessing of the Federal Government's FHA program.

Welcome to the new boss, same as the old boss, and they both called 1600 Pennsylvania Avenue home.

If we don't stop this insanity before the market forces it on us, and it will......

1 posted on 09/13/2009 7:55:00 PM PDT by HangnJudge
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To: HangnJudge

I recently began subscribing to this guy’s youtube channel. I decided very quickly that he knows what he is talking about. And I’m scared.


2 posted on 09/13/2009 8:00:14 PM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: HangnJudge
Sobering graphics


3 posted on 09/13/2009 8:00:16 PM PDT by HangnJudge
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To: mamelukesabre
No argument here

4 posted on 09/13/2009 8:01:28 PM PDT by HangnJudge
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To: mamelukesabre

I’ve been reading his articles for some time.

He does know what’s going on.

But he’s really naive if he believes that those in the position to make the changes he suggests really have it as their goal to fix the economy.

What is happening is being perpetrated deliberately. Economic destruction, not prosperity, is their goal.


5 posted on 09/13/2009 8:03:58 PM PDT by Ghost of Philip Marlowe (Impeach President Bernanke.)
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To: HangnJudge; informavoracious; larose; RJR_fan; Prospero; Conservative Vermont Vet; ...
+

Freep-mail me to get on or off my pro-life and Catholic List:

Add me / Remove me

Please ping me to note-worthy Pro-Life or Catholic threads, or other threads of interest.

Obama Says A Baby Is A Punishment

Obama: “If they make a mistake, I don’t want them punished with a baby.”

6 posted on 09/13/2009 8:04:44 PM PDT by narses (http://www.theobamadisaster.com/)
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To: Ghost of Philip Marlowe
What is happening is being perpetrated deliberately.
Economic destruction, not prosperity, is their goal.

With permanent dependency of the Sheeple to the state

7 posted on 09/13/2009 8:06:17 PM PDT by HangnJudge
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To: Ghost of Philip Marlowe

You do realize that what is happening has beginnings that can be traced back to the reagan administration...right??


8 posted on 09/13/2009 8:09:34 PM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: HangnJudge

Bump!


9 posted on 09/13/2009 8:16:04 PM PDT by SunTzuWu
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To: HangnJudge

Denninger again hits the bullseye.


10 posted on 09/13/2009 8:18:07 PM PDT by Pelham (Obammunism, for that smooth-talking happy -face communist blend.)
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To: mamelukesabre
You do realize that what is happening
has beginnings that can be traced back
to the Reagan administration...right??


Yes, this can be said...
The Debt to GDP trendline clearly begins
uptick in 1884

11 posted on 09/13/2009 8:18:25 PM PDT by HangnJudge
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To: mamelukesabre

Garn-St Germain?


12 posted on 09/13/2009 8:20:28 PM PDT by Pelham (Obammunism, for that smooth-talking happy -face communist blend.)
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To: Pelham
The laxity in the valuation process for
Bonds, Real Estate, and other equities
was criminal in my mind.
Then the Sh.t hit the fan,
The players couldn't unwind their positions,
and idiots who bought into real estate at
“No Money Down” pricing found the door out closed


13 posted on 09/13/2009 8:29:47 PM PDT by HangnJudge
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To: Pelham

Possible.

I think maybe reagan and everyone else was too eager to repair the shattered economy. I know, hindsight is 20-20. We were all grateful for his efforts at the time. But he set a trend that grew more extreme in later administrations. I now believe the best way to handle the economy is TO KEEP OUR STUPID HANDS OFF IT. I don’t think a 4 year term is long enough for a president to really do anything constructive with the economy. It takes longer than that to realize the true effects of your tinkering.

It appears to me that the last 8 years, and maybe more, we went a little too far with some of the de-regulation...or at least applied the concept in a stupid way.


14 posted on 09/13/2009 8:39:52 PM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: Ghost of Philip Marlowe
And from...
http://www.abovetopsecret.com/

...Do you now understand, banks have not put those derivatives on their books - but come Sept. 30th 2009 - due to new banking standards - derivatives need to be put on the books and when that happens - the banking industry will most likely come crashing down.

Watch out for 9/31/09
when the worthless derivative market equities
are declared by banks,
the Sh.t likely will really hit the fan

15 posted on 09/13/2009 8:45:26 PM PDT by HangnJudge
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To: mamelukesabre

Garn-St Germain was a bill that deregulated the S&Ls and ended up opening the door to widespread fraud. It was one of a series of innovations that dismantled the Glass-Steagall act over a series of years and very likely is one of the roots of the current financial crisis.


16 posted on 09/13/2009 8:47:34 PM PDT by Pelham (Obammunism, for that smooth-talking happy -face communist blend.)
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To: Pelham

http://en.wikipedia.org/wiki/Garn-St._Germain_Depository_Institutions_Act

The bill, whose full title was “An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans,” was a Reagan Administration initiative.


17 posted on 09/13/2009 8:50:49 PM PDT by HangnJudge
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To: HangnJudge

“Watch out for 9/31/09”

I’m predicting that that day won’t show up. ;-)


18 posted on 09/13/2009 8:51:39 PM PDT by Pelham (Obammunism, for that smooth-talking happy -face communist blend.)
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To: HangnJudge

Actually the bill was the brainchild of Ferdie St Germain, a Rhode Island Democrat as sharp as he was crooked. It’s the fault of the Reagan people that they didn’t closely examine his bill.


19 posted on 09/13/2009 8:53:51 PM PDT by Pelham (Obammunism, for that smooth-talking happy -face communist blend.)
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To: Pelham

Thirty days hath September....

Hmmm...
must fact check dates


20 posted on 09/13/2009 8:55:33 PM PDT by HangnJudge
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To: HangnJudge
Watch out for 9/31/09

There are only 30 days in September!

21 posted on 09/13/2009 9:06:05 PM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: HangnJudge
Watch out for 9/31/09

There are only 30 days in September!

22 posted on 09/13/2009 9:06:20 PM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: HangnJudge

23 posted on 09/13/2009 9:06:34 PM PDT by blam
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To: grey_whiskers

See #20

don’t you just hate those double strikes...


24 posted on 09/13/2009 9:08:35 PM PDT by HangnJudge
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To: mamelukesabre
mamelukesabre writes:

“It appears to me that the last 8 years, and maybe more, we went a little too far with some of the de-regulation.....”

Fannie Mae and Freddie Mac were directly managed and regulated by the US Congress.

The value of their stocks fell almost $130 billion.

By contrast, Enron lost $60 billion, most of that because federal regulators caused the panicked destruction of Enron's trading business in less than 24 hours.

Also of note, Detroit and central California have the highest home mortgage default rates and home price declines in the nation.

The reason:

Federal regulators, using the threat of discrimination lawsuits, essentially eliminated credit and income standards for mortgages for Blacks and Hispanics.

More than any other factor, government regulation caused the collapse of the home mortgage financial market.

25 posted on 09/13/2009 9:09:09 PM PDT by zeestephen
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To: HangnJudge
Yeah, I hate 'em (sigh).

Thanks for noticing.

Cheers!

26 posted on 09/13/2009 9:17:37 PM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: HangnJudge
How To Prepare For China’s Coming Derivatives Default

Sep 13, 2009 - 04:48 PM
By: Graham_Summers

In case you have not heard the news, China has announced that it will be instructing its state-owned enterprises to potentially default on their derivatives contracts. As I have written extensively in the past, the derivatives market is a massive time bomb just waiting to go off. China’s latest move may be the match that lights the fuse.

[snip]

I am not saying any of this to be “scary” or “doom and gloom.” But things are coming to a head in a very REAL way on the global stage. And it is not looking good at all. This financial crisis is nowhere near over. If anything we’re at the end of the beginning.
Many, many more banks will go under. We can and will see a lot more volatility in the bond and currency markets (a bear market in bonds would be a nightmare we haven’t seen in 30 odd years). And stocks (already overbought and propped up via manipulation and accounting gimmicks) are primed to take a full-scale nosedive (more on this in a minute).

My Personal Message: BE PREPARED

In light of this, and on a more personal note, I am suggesting you prepare for the WORST if you are in the US. This means stockpiling food, and having enough cash on hand to survive an economic shutdown if it happens. We came close to such an event last fall (the story was not widely spread but banks in US and UK considered shutting down ATMs and having a holiday).

I can tell you that I personally have stockpiled food (3 months’ worth) and am telling my family and friends to do the same. After all, what’s the worst that could come from doing this? If I’m totally wrong and everything gets better, you simply eat the food just like you would anyway.

But if I am right, and things do get MESSY, then stockpiling now means you’ve got food on the table later. Again, we have the making of several black swan events that could push an already weak economy into SERIOUS trouble.

[snip]

(The Black Swan Theory (in Nassim Nicholas Taleb's version) concerns high-impact, hard-to-predict, and rare events beyond the realm of normal expectations. Unlike the philosophical "black swan problem", the "Black Swan Theory" (capitalized) refers only to events of large magnitude and consequence and their dominant role in history. "Black Swan" events are considered extreme outliers. Note that in his writings Taleb never uses the phrase "Black Swan Theory"; instead, he refers to "Black Swan Events" (capitalized).

27 posted on 09/13/2009 9:21:45 PM PDT by blam
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To: blam

Thanks for the link. This threat of default on derivatives contracts, from China, is a matter of great concern. They might well do so - I would not put it past them.


28 posted on 09/13/2009 9:38:13 PM PDT by BlackVeil
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To: mamelukesabre

This is the same fellow who scared the sh*t out of me when he came across on a video screaming, “Demand full transparency on these transactions”...this was back before Lehmans fell, or about that time. He was spot on and I fear he is again.


29 posted on 09/13/2009 10:05:07 PM PDT by Texas Songwriter
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To: HangnJudge
Jim Sinclair reported tonight that the Bank of International Settlements, for the first time in history is proposing that the world's central banks take over the fanancial risk of the enitire mountain of more than 1.25 quadrillion dollars of notional valued OTC derivitives. They are still selling these derivitives and we are on a hair razors edge of moving toward the double dip of the second great depression. He says as soon as China says no to Western crack cocaine finance they will exit and our debt will, in reality, declare itself. This is why China is buying raw material, intering joint ventures and purchasing energy and raw material while utilizing their dollar instruments for payment.

Last week JP Morgan, Goldman and 13 other derivitive dealers petitioned the New York Federal Reserve Bank that they will submit 95% of new creditu-default swap trades to clearinghouses. Global Markets for DERIVITIVES rebounded to $426 trillion in the second quarter as risk appetite returned, but the system remained unstable and prone to crisis, according to BIS.

Washington/Wall Street is now nothing more than a Crime Syndicate and they are about to burn the country to the ground. The Grandest of Larceny.

30 posted on 09/13/2009 10:19:25 PM PDT by Texas Songwriter
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To: HangnJudge
"Yes, this can be said... The Debt to GDP trendline clearly begins uptick in 1984"

Sure it did but the liberals totally controlled the Congress and it is the Congress, not the president that holds fiscal as well as legislative sway. The Executive Branch hasn't the power on it's own to spend a dime or enact a law.

31 posted on 09/14/2009 3:11:39 AM PDT by 101voodoo
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To: HangnJudge

Who says the derivatives in fact will be valued? If the banks “say” they have done it and a complicit regulatory agency signs off on it (wink, wink) who is to know? Does anyone really trust anything coming out of the beltway today?

And the music plays on.


32 posted on 09/14/2009 3:14:46 AM PDT by 101voodoo
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To: HangnJudge

gulp..

bttt


33 posted on 09/14/2009 3:20:24 AM PDT by SE Mom (Proud mom of an Iraq war combat vet)
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To: HangnJudge
Thirty days hath September
April, June and November
February has twenty-eight alone
All the rest have thirty-one.

34 posted on 09/14/2009 3:34:39 AM PDT by RegulatorCountry
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To: HangnJudge

It would seem to me that we an insolvency road map. Ignore the problem like Japan. /s


35 posted on 09/14/2009 4:18:03 AM PDT by EVO X
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To: mamelukesabre
No. I realize it can be traced all the way back to 1913 when the Federal Reserve Act was passed (actually 1914 when it went into action).

Our Founding Fathers were staunchly against a central bank (except for Monarchist Alexander Hamilton). As Thomas Jefferson said (to paraphrase): a central bank is a greater threat to a republic than a standing army at the gates. Why? Because they knew what Rothschild knew (and stated): Give me control over the currency and I care no who makes the law.

In a republic, “who makes the law” is that body of politicians elected by the people to represent them. So, the central bankers know and state that if they have control over the currency, THEY are the rulers, not representatives, of the people.

Every president since 1914 has been subjected to the decisions of the Federal Reserve (our central bank). The Fed and its member banks and its selected cronies in politics and especially in the financial sector, profit and gain power in the boom-bust cycle and by the issuance of fiat currency.

EVERY president has been subjected to power of the central bank.

Yes, President Reagan was too. But to try to pin the current economic catastrophe on him is foolish. He came to power with that same long-running Democrat control of the congress. THEY controlled the purse strings.

And yes, President Reagan employed deficit spending, but it was NOT the same as deficit spending after his term. Why?
Deficit spending, per se, is not necessarily a bad economic policy, if it is of a small percentage of the GDP and if it is for a short duration and if the government pays back the credit they pull forward.

Using a credit card, you can spend more than you earn for a few months just as long as you make payments on the interest and then pay down the principle. If you do, at the end you will have enabled a higher standard-of-living and the assets you have will be tangible capital (usually, and analogously, of course).

President Regan's deficit spending was a much smaller percentage of the GDP. And his plan was to make it for only a few years. The problem was that once the economy took off, Congress went on an insane spending spree that made it very difficult to pay off the debt. This got pushed from one president to the next. Bush I was no help, spending to try to win friends and votes on the other side of the aisle. Slick Willy tried to make it appear they had spending under control by diverting funds from the military to pay for social programs. He did so because he knew the high-tech bubble was popping. He didn't want it to pop under his term because he wanted his legacy to be “8 years of peace and prosperity,” as delusional as that was. So he created a housing bubble by enforcing hyper-easy liquidity in the mortgage industry by enforcing the Community Reinvestment Act of Jimmy Carter — a home-ownership giveaway to the poor.

Bush II foolishly trusted the voice whispering in his ear from the Fed and believed that inflating the currency and pumping huge amount of funds into certain industries would prevent the housing bubble from popping. He was wrong. It was bad debt. It needed to be cleared and the banks needed to go bankrupt and people needed to lose their homes and move back into apartments, etc. because it was not real prosperity they had earned.

But what Obama and his communist/socialist/fascist cohorts are doing is ten-times worse. Bush spiked the punch during the last 8 years, but Obama is slipping us a mickey.

No one but NO ONE who has even an inkling of macroeconomics can look at what those in power are doing and convince themselves that these decisions are being made to strengthen the dollar, get our economy back on track, pay off our debts, and promote real economic prosperity.

Obammie and his Commies are using the current situation and are WORKING WITH THE FED to bring about the collapse of the US Dollar. They are shoveling money to all their friends and supporters to pay them off and help them earn back their losses while the dollar still has value. When it collapses, the wealth of most Americans has effectively been destroyed (asset value, income value, retirement plans, etc.) they think the American people will demand we abandon the dollar and will gladly take .25c to the “WORLD CURRENCY” that we sign on to. Of course, that currency and its economy will be controlled by a global “central bank” labeled something like the World Economic Ministry or something.

THIS has been the goal of central-bankers since they first began colluding with major industry and politicians on the communist and republican side if the aisle in the 19th century.

THE CENTRAL BANKERS ARE THE PUPPET MASTERS.

36 posted on 09/14/2009 4:50:49 AM PDT by Ghost of Philip Marlowe (Impeach President Bernanke.)
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To: HangnJudge

It’s coming. I don’t know when (months or years). But we’re headed for economic catastrophe.


37 posted on 09/14/2009 4:51:51 AM PDT by Ghost of Philip Marlowe (Impeach President Bernanke.)
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To: HangnJudge

bttt


38 posted on 09/14/2009 4:53:14 AM PDT by petercooper (GOP: Big Tent Party??? Not if you are a CONSERVATIVE.)
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To: HangnJudge
The Coming Consequences Of Banking Fraud

by: J. S. Kim September 09, 2009

The Double Dip Recession, or the “W” shaped recovery that a minority of economists, such as Joseph Stiglitz, is now stating as a strong possible outcome of this current rally, should not be discussed in the realm of economics but rather in the more apropos realm of financial fraud. The fact that the upleg of the “W” shaped recovery that is occurring now will inevitably crumble in spectacular fashion will not be a result of any free market principle, but rather the direct consequence of a fraudulent scheme executed by an elite global financial oligarchy, otherwise known as Central Banks. If the mission of this current manufactured leg-up in Western stock markets was to fool the world into believing that global economies are recovering, then clearly, up until this point, the mission has been a resounding success. For those unfamiliar with the term “blowback”, it's a CIA term that was first used in March 1954 to describe the unintended consequences of US government international activities kept secret from the American people.

[snip]

39 posted on 09/14/2009 7:35:45 AM PDT by blam
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To: zeestephen

Federal regulators, using the threat of discrimination lawsuits, essentially eliminated credit and income standards for mortgages for Blacks and Hispanics.

~~~~~~~~~~~~~~~~~~~~~

Relaxing the standards is, imo, deregulation. Not regulation. The feds effectively forced the free market to ignore regulations for certain ethnic/income groups.


40 posted on 09/14/2009 12:31:47 PM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: Texas Songwriter

Me too.


41 posted on 09/14/2009 12:32:25 PM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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