Posted on 11/23/2012 2:28:04 PM PST by ex-Texan
Bad mortgage loans, obscured through complex and unregulated investment instruments, cost taxpayers billions
WASHINGTON—The U.S. economy is slowly making a recovering from a near-collapse and the worst recession since the Great Depression.
But what brought on the subprime mortgage crisis that led to huge financial losses, a decline in wealth for much of the country, a GDP drop of 5 percent for the period from Dec. 2007 to June 2009, and an official unemployment rate that peaked at 10.0 percent in Oct. 2009?
“Very few people understand [what happened],” said University of Maryland Professor Michael Greenberger at the Center for National Policy on Nov. 1. “I firmly believe that the president of the United States doesn’t understand. They don’t understand what went wrong.”
In layman’s terms, Greenberger attempted to explain the essence of how the near collapse of our financial system came about. It’s a story involving new complex financial creations that mask the risks that investors take. The story is also about the role of the federal government—that is, the taxpayers—in rescuing the banks, and the story is ultimately about “criminal” behavior that has eluded prosecution, says Greenberger. * * *
Suppose a casino had a game which offered an even-money bet that a card would be ten or higher (ace counts as high). Such a bet would be a sufficiently bad proposition (every $13 bet would win $5 and lose $8, for a net 3/13 loss) that few people would pay it; if someone suggested that the government should partially reimburse people who take that gamble and lose, they might claim such reimbursement wouldn't cost much since few people play the game.
Indeed, if the government were to offer e.g. 25% reimbursement, it probably wouldn't have to pay terribly much. For each $13 bet by the player, the player would win $5, and the total loss would be $8, with $6 coming from the player and $2 from the government. From the player's perspective, the expectation would be -1/13 instead of -3/13, but since the expectation would still be negative, there wouldn't be a huge number of people playing.
Increasing the reimbursement from 25% to 50%, however, would far more than double the cost of the program. With 50% reimbursement, each $13 would result in a $5 gain for the player and a $4 loss for the player, along with a $4 loss for the government; from the player's perspective, every $13 wagered would net a $1 payout. Having the game offer players a chance to lose a little money rather than a lot isn't a huge incentive to play, but having it offer a positive payout is. If players were allowed to play as much as they wanted with the above-described reimbursement schedule, there would be no reason for a rational person not to play as much as possible.
It's important to note, however, that the biggest beneficiary of the program which was supposed to benefit the "victims" of the casino's horribly-lopsided game would not be the victims who were foolish enough to play the original game, nor would be it even be the "gamblers" who could earn cash with essentially no risk by gambling with taxpayer funds. The biggest beneficiary would be the casino. For every $13 wagered, the player would get $1, taxpayers would lose $4, and the casino would get $3.
If government "bail-out" programs grow to the point that certain activities' expectations which should would naturally be negative expectations instead become positive, it should not be surprising that people flock to those activities, nor should it be surprising that huge amounts of money are "lost" there. While it may be difficult to predict exactly what level of subsidy will be sufficient to tip people's perceptions of the gain/loss balance, the fact that people will swarm to an activity once the balance does tip is not just predictable--it's a near-certainty.
Here's a preliminary report for you.
How do you think the U.S. "Prime Rate" is set?
The same way as LIBOR.
It is simply a consensus as to the rate at which banks are willing to charge each other to loan money to each other, if needed for liquidity or other purposes.
There is no conspiracy here.
What other people do with the "Prime Rate" or "LIBOR" after either one is made public is their own business.
There really is no boogeyman here.
It has nothing to do with consumers unless they seek and accept a loan tied to that index.
The central bank and Congressional policies created the mess. Blame business if you will [all too many supposedly conservative FReepers do] but you're missing the point. Business adapted to the atmosphere created by Congress.
I'm no fan of the banks and they are protected by the government but they'd have no power if they were treated like other businesses. They're not.
Ask youself why. And why aren't Barney Frank, Frank Dodd, et. al. going to prison?
It was government policy that banks provide more mortgages. More than what? More than banks wanted to provide. Banks were regulated into providing more mortgages. The government used carrot and stick to get banks to do its bidding. An example of a stick was the law that allowed community organizer Barack Obama to sue CitiBank to force them to provide more mortgages. A carrot was Fannie Mae providing free (government provided) insurance for mortgages.
People make mistakes. This applies all over: individuals, churches, business, schools, government. Generally, people will rectify their mistakes. For example, few are willing to repeatedly waste their money. However, it's different with government. People in government waste other people's money. They can do that year after year, even decade after decade. That is just one reason why socialism works poorly.
This recession was caused by government, as was the great depression. Socialists are always there to tell you otherwise.
TIME TO NAIL THE CONGRESSMAN WHO COLLUDED IN THE BILLION DOLLAR SUB-PRIME DEBACLEThe Congressional Hispanic Institute, Inc, is an entity organized by Cong Joe Baca (D-Cali) in his capacity as head of the Congressional Hispanic Caucus.
Cong Baca created "HOGAR" (Spanish for home) in 2003 to work with the mortgage industry, lender and banks and latino community groups to increase mortgage lending to what savvy observers considered to be unqualified Latinos.
"HOGAR" colluded w/ Cong Baca in what was to become a massive bilking of taxpayers. Cong Baca calculatedly hyped the fact that the national Latino homeownership rate was 47%, compared with 68% for the overall population.
HOGAR was coached to call the figure "alarming," and to say "a concerted effort was required to ensure that by the end of the decade Latinos will share equally in the American Dream of home ownership."
HOGAR and Cong Baca conned the public, failing to note that most of the "dreamers" were illegals, citizens of Third World countries who had violated US borders.
Predictably, HOGAR colluded w/ co-conspirators which included:
(a) shaky mortgage companies that ran into big trouble;
(b) Fannie Mae and Freddie Mac, both now under federal control after billions in taxpayer bailouts;
(c) Countrywide Financial Corp., sold to Bank of America Corp;
(d) Washington Mutual Inc., taken over by the US government and sold to J.P. Morgan Chase & Co.; and,
(e) New Century Financial Corp. and Ameriquest Mortgage Corp, both now defunct, killed by defaulted subprime Latino mortgages.
HOGAR's ties to the subprime mortgage industry were substantial. Bribery and self-dealing were rampant:
<><> Companies that donated $150,000 to Cong Baca got the right to have their own research fellow who would conduct fraudulent studies, which were cunningly used by industry lobbyists to pump lending.
<><> Bribery and extortion in the form of $100,000 annual donations to Cong Baca, for which HOGAR provided phony news releases from Cong Baca's Hispanic Caucus promoting a lender's commercial products to the Latino market,
<><> The most shocking example of bribery well-substantitated by Hogar's literature..... HOGAR announced it worked with Freddie Mac on a self-serving two-year examination of Latino homeownership in 63 congressional districts.
The "study" found Hispanic ownership on the rise thanks to "new flexible mortgage loan products" that the industry was adopting at the urging of Cong Baca's collusive coterie.
<><> HOGAR conned lenders into even more lenient down-payment and underwriting standards.
<><> As the subprime debacle unfolded, HOGAR declined repeated requests for comment despite the economic havoc their activities precipitated.
The mortgage schemes demonstrated the criminal activities of border violators with multiple identities---perhaps violent, terrorist-connected foreigners---colluding and conspiring to defraud private companies and public entities. And mortgage racketeering enterprises which employed sub rosa finance and business practices to carry out deceptions and frauds.
The alleged ring of swindlers---a Congresman, individuals with multiple identities, banks, insurance companies, mortgage nrokers--might be charged with cheating the US govt, taxpayers and bank share holders out of hundreds of millions of dollars via an elaborate web of mortgage and bank frauds.
The mortgage Dreamers used multiple phony identities, fraudulent Social Security numbers, purchased from identity forgers in order to obtain govt-subsidized benefits.
L/E will find that individuals with multiple identities obtained fraudulent mortgages then flipped the houses at ever-higher prices to family member who then absconded to foreign countries, sticking banks (and taxpayers) with hundreds of millions in fraudulent mortgages.
BACKGROUND A Wall Street Journal investigative report related that, according to the Federal Financial Institutions Examination Council examination of the borrowing spree, uncovered financial schemes by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, all colluding in fraduent schemes to increase homeownership among Latinos with forged documents which enabled massive fraud.
This was not simply the mortgage market at work. It was fueled by avarice, greed, and Congressional enabling fraudulent practices. In 2005 alone, mortgages to Hispanics jumped by 29%; Latinos with multiple fraudulent identities in low-paying jobs obtained subprime mortgages for prime properties---soaring to 169%.
(Research provided by Wall Street Journal. Some material excerpted from the NY Times.
The Office of Federal Housing Enterprise Oversight’s report says that F/M CEO Franklin Raines---a Clinton appointee---and other Fannie Mae bigwigs, deliberately and intentionally manipulated financial reports to artificially hit earnings targets in order to trigger multi-million dollar bonuses for senior F/M executives.
Ex-Fannie CEO Franklin Raines should be behind bars for life. He is a crook of the first order. This thief Raines cooked the FM books precipitating losses of $9B (that we know of) for the single purpose of creating bonuses for himself and other F/M insiders. The SEC said Raines broke accounting rules by playing with risky derivatives.
RAINES COOKS THE F/M BOOKS---WALKS AWAY A MULTI-MILLIONAIRE After Raines was fired and exposed as a fraudster for cooking the govt books, Raines walked away w/ $90 million dollars, a $26 million parachute, PLUS..... Raines gets a MONTHLY pension of $116,300 for life. Raines had already collected $4.87 million in "special performance" shares. Raines owns options giving him $5.8 million in net profit after redemptions, plus another $8.7 million in deferred compensation for his six years at the F/M helm. There's more.
Raines keeps $5 million of paid-up life insurance. He and his spouse get free medical and dental benefits for life, worth over $1 million. NOTE: Raines earned $20 million in salary, bonuses and stock awards (that we know of) in one year.
To keep Raines happy within philanthropic circles, Fannie Mae will match Raines' charitable contributions by $10,000 a year.
After he was fired, Raines told the F/M board that he's entitled to get paychecks until June 22 giving him another $600,000, which triggers a $2,000 monthly raise in his lifetime pension. He also said he's entitled to disputed options with a gross value of about $5.6 million.
========================================
GENESIS OF THE F/M BILKING--- Clinton appointee. Fannie Mae CEO Franklin Raines' Letter to Shareholders--excerpted from 2003 Fannie Mae Annual Report
Excerpt ...Ten years ago the typical conforming mortgage required a down payment of 10- 20%, and low-down payment mortgages were considered too risky. But then we helped to standardize the 3-5% 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. (End Raines excerpt.)
Greed: Welfare. That’s greed. Taking something that doesn’t belong to you and making the government take it for you using the force of a gun.
Fannie/Freddie are centerpieces of the criminal enterprise called the Democrat Party-—where Dem cronies and collaborators loot the organization, get cushy jobs, bonuses, and the like.
Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the home ownership mania, and spread “charitable” contributions to housing advocates across the congressional map.
Fannie Mae serves as an industrial-sized patronage factory — sharing profits with political allies, spreading taxpayer funds to voting blocs——like ethnic groups-——and doling out jobsto left-wing academics, Washington has-beens and back-scratching buddies.
Obama insider Fannie Mae exec Jim Johnson got sweetheart loans from shady subprime Countrywide. Pols raked in six-figure salaries as F/F engaged in Enron-style accounting, plunged into debt and helped usher in the subprime housing meltdown through cockamamie lending practices.
Bill Clinton appointed Franklin Raines, Daley and Rahm Emanuel just as the quasi-governmental F/M engaged in rampant book-cooking so that F/M insider could help themselves to massive bonuses.
The Chi/Tribune exposed how political whore Rahm Emanuel’s “profitable stint” was low-show w/ no work involved. Emanuel was not even assigned to committees, according to company proxy statements. Immediately upon joining the board, Emanuel and other insiders qualified for $380,000 in stock and options plus a $20,000 annual fee, public records indicate. W/ Wall Street Rahm Emanuel at F/M, accounting tricks were used to mislead shareholders about outsize profits F/M reaped from risky investments.
The goal was to cook the books to keep fraudulent earnings on the books, to make Freddie Mac look profitable on paper-——AND to fraudulently obtain humongous annual bonuses for political insiders.
Regulations without gov monitoring to make sure the mortgage bankers do not cheat the consumer or investors who buy the mortgage notes is useless. Someone claims to make 90,000 dollars to buy a 600,000 home with 10 percent down, when he actually makes 45 000 a year and borrowed money for the 10 percent down makes it a totally different risk factor. Well the bankers took the application with false info and claim it was a AAA mortgage note. Investor buys it by leveraging, ala 1 dollar down to buy 10 dollars worth of mortgage notes, and insures the investment against loss by buying derivatives. The underwriter of the derivative assumes the mortgage is AAA based on what the banker told him and charges the investor a low premium due to the notes falsified low risk. Unfortunately this went on since the gov Fannie Mae and Freddie Mac was willing to buy bundled mortgage notes from bankers without truly verifying the info on each mortgage note. Bankers knew that, and immediately embarked on a massive campaign to sign up as many mortgage applicants as possible, collect the fees and points and selling the risk to FM&FM. Government was trying to do mortgage bankers a favor and they repaid it with fraud. Countrywide was not the only mortgage banker who encouraged false application info, THEY ALL DID IT!!! Freepers need to understand one cannot blindly trust businessmen. If no one monitors them they will cheat the consumer and corrupt gov officials, unless we return to the frontier way of doing business, the banker will be shot by the cheated customer (probably it is a more effective way then relying on gov that can be brought by lobbyists).
I didn't read post 6 as blaming Bush. Clearly the post blamed government. The government also includes Congress. I suspect the blame was intended for Pelosi, Frank, Reid, and Dodd for expanding the activities of Fannie Mae. The post says the problem was not deregulation. You blame deregulation.
Your post seems to imply an agreement that is not there. It seems manipulative to me. Why write in such a fashion?
It sounds like you two are the ones who need an education.
The government should not be backing mortgages in the first place, nor should it force banks to make mortgage loans to those who cannot pay them back
A major problem with mark-to-market is that it presumes that n units of something will be worth n times the market price of one unit. In some cases, estimating the worth of assets based upon their marginal market value may be more accurate than estimating their worth via any other means, but that doesn't mean it should be prescribed as a standard. Prescribing such a standard is in fact liable to make it less accurate as an estimation of worth.
Well and simply put.
Before we hammer free enterprise (free people and freedom) again, the government should put it’s own house in order. This mess was (and is) the result of Government policy.
We recently refinanced because of the lower rates and I was surprised to find that our old loan was now a Fannie loan but still processed by Wells Fargo.
I asked at settle on the first loan if it would always be Wells and was assured that it would be.
I wonder if it was part of TARP.
So "bundling" mortgages on homes that are worth half their loan value and selling them as "securities" is A-OK in your book?
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