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Greed, Lack of Transparency Caused Financial Crisis, Says Greenberger
The Epoc Times ^ | 11/15/ 2012 | Gary Feuerberg

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. * * *


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; Editorial
KEYWORDS: economy; greed; mortgagecrisis; ponzischeme
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There is the crux of the truth in a not shell. Still, I urge verybody to read the article at the source. This was a multi-level fraud from the get go and nobody wants to point the finger of blame squarely where it belongs. The too big to fail boys got rich and some got filthy rich through this massive fraud -- and nobody is going to go to prison. Nada. Nope. Duh !
1 posted on 11/23/2012 2:28:10 PM PST by ex-Texan
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To: Tailgunner Joe; Beave Meister; American Constitutionalist; SoftwareEngineer; stephenjohnbanker; ...

*Ping* !


2 posted on 11/23/2012 2:32:53 PM PST by ex-Texan (The Time to "Wake Up" is Over !)
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To: ex-Texan

unregulated?

The mortgage and banking businesses are some of the most regulated things in the world.


3 posted on 11/23/2012 2:49:22 PM PST by GeronL (http://asspos.blogspot.com)
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To: ex-Texan

Recovering, my patoot.


4 posted on 11/23/2012 2:54:00 PM PST by BlessedBeGod
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To: ex-Texan

What about the Feds going after the banks for not loaning money to minorities so that they could by a house? The heck with the traditional 20% down. That is discrimination so say the dimoKKKRATS.


5 posted on 11/23/2012 2:55:10 PM PST by Parley Baer
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To: ex-Texan

BS. No one forced anyone to get a mortgage, or max out their home equity. It was not deregulation or derivatives that killed the golden goose. It was the government encouraging banks to lend to people with no income, jobs or assets (NINJAs) coupled with Freddie and Fannie’s guarantee on the bank loans, the Fed’s loose monetary policy and the fantasy of ever rising property values.


6 posted on 11/23/2012 2:55:55 PM PST by ffusco (The President will return this country to what it once was...An arctic wasteland covered in ice.)
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To: Parley Baer

Also what role did the Black Congressional Caucus, Barney Frank and Christopher “Country Wide” Dodd have in this? A lot IMHO.


7 posted on 11/23/2012 2:57:22 PM PST by Parley Baer
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To: ex-Texan
Sarbanes-Oxley, imposed upon businesses after the Enron collapse, requires that companies carry assets at actual value, or "mark-to-market."

The Federal Reserve forbids banks from using mark-to-market.

Go figure.

8 posted on 11/23/2012 3:02:54 PM PST by E. Pluribus Unum (Labor unions are the Communist Party of the USA.)
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To: ex-Texan

Congressman Barney Frank is the primary person responsible for Poor Risk borrowers getting home loans from banks.


9 posted on 11/23/2012 3:06:00 PM PST by OldNavyVet
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To: ex-Texan
B.S. I'll give it to you in a nutshell:
Government: We want you banks to give loans to people that shouldn't get loans.

Banks: What?

Gov: Let's put it this way. You WILL give loans to people that shouldn’t get loans, or forget about your plans for expansion.

Banks: We'll go out of business doing that.

Gov: You know, if you bundle and securitize the mortgages you can sell those securities.

Banks: What? You will let us do that? You never let us do that sort of thing before. Heck, that's not even IN the tens of thousands of pages of regulations.

Gov: You are right, but it's OK. Freddie Mac and Fannie Mae are cool with it to.

Banks: Wow...cool.

Time goes by and these new mortgage backed securities are found to be money machines when they are sold, sometimes in bits and pieces. Like all financial instruments increasingly clever ways are found to turn a profit, especially when there is little to no regulation involved for that type of new investment.

More time passes, and people that should not get mortgages act like people that should not get mortgages.

Banks: Government, please save us!

Government: OK, but this all happened because you were so greedy.

Banks: WHAT!?!?!?!?

10 posted on 11/23/2012 3:11:01 PM PST by jdsteel (Give me freedom, not more government.)
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To: ex-Texan

Federal government caused this mess and then blamed their tools for it.


11 posted on 11/23/2012 3:13:32 PM PST by elkfersupper ( Member of the Original Defiant Class)
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To: GeronL

“The mortgage and banking businesses are some of the most regulated things in the world.”

Check out the Libor scam trial getting underway in the UK, involving Barclays, HSBC and others. It will disabuse you of the notion that banks are regulated.

Give us a preliminary report if you feel like it.


12 posted on 11/23/2012 3:20:47 PM PST by sergeantdave (The FBI has declared war on the Marine Corps)
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To: ex-Texan

Ping!

Hello there old Friend!


13 posted on 11/23/2012 3:27:03 PM PST by JDoutrider
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To: ex-Texan; mickie
There are many perps in government and in Wall Street that breathed a sigh of relief when the Conman-in-Chief won the presidency.

Nothing will now be done to investigate ANYTHING or ANYBODY. The perps will skate.

The raping of the makers will continue apace. The takers will have big trouble getting mortgages now, but other deviously-clever ways will be found to ensconce them in their own little dream homes.

Oh, well, just another day, another shrunken dollar in our pockets.

Leni

14 posted on 11/23/2012 3:27:03 PM PST by MinuteGal (Please Restore Former Format on FR "Latest Posts" Page ASAP !)
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To: ex-Texan
I've posted this before and if you want the REAL TRUTH it will take 2 hours and 25 minutes of your time.

Believe me when I say, "this is well WORTH WATCHING." Miss Barnhardt is NOT a fan of either Democrats or Republicans, as you will hear.

There's stuff sprinkled throughout these videos that I'm guessing you've NOT heard before! And the last 4 parts will probably somewhat blow your mind. Some very candid talk from her.
 
I've watched it TWICE now and it's very illuminating. It's some pretty powerful stuff, especially parts 5, 6, 7, and 8,
It's my calculated guess that we have 1 to 2 years before the house of cards comes down. It could happen sooner as a result of an unexpected acceleration of some of the scenarios put forth by Miss Barnhardt.
 
This video is in 8 parts on YouTube. Each part is approximately 20 minutes. It's delivered by Ann Barnhardt.
It was posted 2 weeks ago on YouTube, Nov 8th, 2 days after the election. It was actually recorded on Nov 2nd.
 
The Economy Is Going To Implode - Pt.1 of 8
http://www.youtube.com/watch?v=7dFVFJ0iRRA&feature=relmfu
 
If you're wondering who is Ann Barnhardt?

On November 17th, A.D. 2011, Ann Barnhardt–the president of Barnhardt Capital Management–wrote a letter announcing her decision to close her investment company and explained her reasons for doing so.

She’s closing in reaction to the recent collapse of MF Global–which she attributes to the criminal acts of  MFG president Jon Corzine and the increasingly corrupt nation of American markets.

http://adask.wordpress.com/2011/11/21/barnhardt-capital-management-closes/

15 posted on 11/23/2012 3:44:39 PM PST by VideoDoctor
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To: MinuteGal

No bigger sigh than Jon Corzine, the poster boy of ‘effective’ banking/financial rules and regulations.


16 posted on 11/23/2012 3:47:25 PM PST by yadent
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To: ffusco; jdsteel

So both of you lay the blame squarely on Bush? Well both of you are correct as far as you go. But no enforcement of bank regulations by Bush had just as much to do with it, causing the bankers to get greedy. Now, of course, the Fed is complicit by driving down interest rates to zero, hurting savers, to allow bankers to dump to loans back on the government, which takes the loss as they peddle the loans back to the banks. Net result, savers lose, taxpayers lose, bankers win. There’s nothing new under the sun.


17 posted on 11/23/2012 3:48:06 PM PST by Founding Father (The Pedophile moHAMmudd (PBUH---Pigblood be upon him))
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To: ex-Texan
The too big to fail boys got rich and some got filthy rich through this massive fraud -- and nobody is going to go to prison. Nada.

I am offended by bankers and I was a banker for nearly 40 years.

Having said that, I am more offended by folks who clearly have no knowledge of the real perpetrators of this mess chiming in and insinuating that the folks who caused it failed to "regulate" it.

It was these dumbasses' "regulations" in response to misplaced populism on the part of politicians that created the mess in the first place.

Geez!

18 posted on 11/23/2012 3:51:25 PM PST by elkfersupper ( Member of the Original Defiant Class)
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To: sergeantdave

Beautiful response. The Libor trial might actually open some eyes around here. Thank you for your attempts at educating Freepers.


19 posted on 11/23/2012 3:51:31 PM PST by Founding Father (The Pedophile moHAMmudd (PBUH---Pigblood be upon him))
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To: ex-Texan

Can you say sub-prime?


20 posted on 11/23/2012 3:58:14 PM PST by maddogtiger
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To: ffusco
It was the government encouraging banks to lend to people with no income, jobs or assets (NINJAs) coupled with Freddie and Fannie’s guarantee on the bank loans, the Fed’s loose monetary policy and the fantasy of ever rising property values.

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.

21 posted on 11/23/2012 4:00:39 PM PST by supercat (Renounce Covetousness.)
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To: sergeantdave
Give us a preliminary report if you feel like it.

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.

22 posted on 11/23/2012 4:00:54 PM PST by elkfersupper ( Member of the Original Defiant Class)
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To: elkfersupper; sergeantdave
Forgot to mention that LIBOR is an acronym for London Interbank Offering Rate.

It has nothing to do with consumers unless they seek and accept a loan tied to that index.

23 posted on 11/23/2012 4:03:08 PM PST by elkfersupper ( Member of the Original Defiant Class)
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To: ex-Texan
The too big to fail boys got rich and some got filthy rich through this massive fraud -- and nobody is going to go to prison. Nada. Nope. Duh !

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?

24 posted on 11/23/2012 4:04:05 PM PST by BfloGuy (Workers and consumers are, of course, identical.)
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To: ex-Texan
“Greed,” always undefined, is always there; so it explains nothing. Consider someone saying “they raised prices because of greed.” Or, “they lowered prices because of greed, to get a greater share of the market.” So what happens next if a tsunami of greed hits? Higher or lower prices?

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.

25 posted on 11/23/2012 4:07:34 PM PST by ChessExpert (The unemployment rate was 4.5% when Democrats took control of Congress in 2006. What is it today?)
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To: All
THIS IS SPOT-ON: the sub-prime mtge story is ultimately about “criminal” behavior that has eluded prosecution.

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.

26 posted on 11/23/2012 4:09:43 PM PST by Liz ("Come quickly, I'm tasting the stars," Dom Perignon)
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To: All
THE BIG FISH THAT GOT AWAY WITH A BUNDLE

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.)

27 posted on 11/23/2012 4:10:51 PM PST by Liz ("Come quickly, I'm tasting the stars," Dom Perignon)
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To: ex-Texan
"Bad mortgage loans, obscured through complex and unregulated investment instruments forced on lending institutions by the federal government, cost taxpayers billions "

Impeach the kenyan or secession.


28 posted on 11/23/2012 4:10:57 PM PST by ex91B10 (We've tried the Soap Box,the Ballot Box and the Jury Box; ONE BOX LEFT!)
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To: ex-Texan

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.


29 posted on 11/23/2012 4:12:54 PM PST by CodeToad (Liberals are bloodsucking ticks. We need to light the matchstick to burn them off.)
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To: All
FANNIE-MAE--THE DEMOCRATS' CRIMINAL ENTERPRISE / By Michelle Malkin

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.

30 posted on 11/23/2012 4:19:37 PM PST by Liz ("Come quickly, I'm tasting the stars," Dom Perignon)
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To: GeronL

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).


31 posted on 11/23/2012 4:21:27 PM PST by Fee
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To: Founding Father
“So both of you lay the blame squarely on Bush?”

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?

32 posted on 11/23/2012 4:23:44 PM PST by ChessExpert (The unemployment rate was 4.5% when Democrats took control of Congress in 2006. What is it today?)
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To: Founding Father

It sounds like you two are the ones who need an education.


33 posted on 11/23/2012 4:26:06 PM PST by ChessExpert (The unemployment rate was 4.5% when Democrats took control of Congress in 2006. What is it today?)
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To: ex-Texan
Bad mortgage loans, obscured through complex and unregulated investment instruments, cost taxpayers billions...wow - he must have read Morgemson and Rosner's "Reckless Endangerment" from early 2011 - only a year and a half behind the curve - not bad for an academic......
34 posted on 11/23/2012 4:26:28 PM PST by Intolerant in NJ
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To: Fee

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


35 posted on 11/23/2012 4:28:13 PM PST by GeronL (http://asspos.blogspot.com)
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Ideally, we need every member and regular user to contribute to keep Free Republic up and running strong.

36 posted on 11/23/2012 4:29:27 PM PST by RedMDer (May we always be happy and may our enemies always know it. - Sarah Palin, 10-18-2010)
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To: E. Pluribus Unum
The Federal Reserve forbids banks from using mark-to-market.

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.

37 posted on 11/23/2012 4:32:59 PM PST by supercat (Renounce Covetousness.)
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To: GeronL

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.


38 posted on 11/23/2012 4:35:12 PM PST by ChessExpert (The unemployment rate was 4.5% when Democrats took control of Congress in 2006. What is it today?)
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To: GeronL

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.


39 posted on 11/23/2012 4:36:03 PM PST by RedMDer (May we always be happy and may our enemies always know it. - Sarah Palin, 10-18-2010)
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To: supercat
Prescribing such a standard is in fact liable to make it less accurate as an estimation of worth.

So "bundling" mortgages on homes that are worth half their loan value and selling them as "securities" is A-OK in your book?

40 posted on 11/23/2012 4:39:26 PM PST by E. Pluribus Unum (Labor unions are the Communist Party of the USA.)
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To: supercat
Prescribing such a standard is in fact liable to make it less accurate as an estimation of worth.

My main point was that government makes rules that it always exempts itself from.

41 posted on 11/23/2012 4:40:02 PM PST by E. Pluribus Unum (Labor unions are the Communist Party of the USA.)
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To: ChessExpert

Very well put. The banks might have resisted government pressure to make bad loans but when the AAA rated securitized mortgage investment fraud got going, the bankers happily followed the political pressure since they could dump their trash on other “investors”. And the “community organizer in chief” and congressional pimps now act like the mess was caused by someone else and we should turn to them for more regulations. Americans are too ignorant and foolish to function as a democracy and we deserve the upcoming financial disaster.


42 posted on 11/23/2012 4:41:15 PM PST by zagger
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To: GeronL
unregulated?

The mortgage and banking businesses are some of the most regulated things in the world.

So this paper must have come from a certain sector where menial tasks like fact-gathering are left to the apprentices, to be thankfully shucked off when they become journeymen. One has arrived when one need not bother sullying oneself with facts beyond the headlines, the "in" time series and thinly-disguised biographies/exposés of glamourous and powerful figures.

And again, once again, the rest of us reach for the Book Of Ecclesiastes.

43 posted on 11/23/2012 4:42:10 PM PST by danielmryan
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To: ex-Texan

NOPE

Natural market forces do not have the ability to create these artificial economic bubbles and there is enough proof going all the way back to the Tulip Bubble.

Only Govt. can create these massive bubbles. Natural business cycles self correct :

NOTICE WHO,WHERE AND WHEN IT BEGAN

Timeline of the United States housing bubble

1930s

1933-1939 The New Deal is a group of new laws created to fix problems in the Great Depression economy, including methods to increase home ownership.
1934 The National Housing Act of 1934, part of the New Deal, makes more affordable housing and home mortgages. It creates the Federal Housing Administration (FHA) (later United States Department of Housing and Urban Development, HUD) and the Federal Savings and Loan Insurance Corporation.
1938 Fannie Mae is founded by the government under the New Deal. It is a stockholder-owned corporation that purchases and securitizes mortgages in order to ensure that funds are consistently available to the institutions that lend money to home buyers.

1968 - 1991

1968: As part of the Housing and Urban Development Act of 1968, the Government mortgage-related agency, Federal National Mortgage Association (Fannie Mae) is converted from a federal government entity to a stand-alone government sponsored enterprise (GSE) which purchases and securitizes mortgages to facilitate liquidity in the primary mortgage market. The move takes the debt of Fannie Mae off of the books of the government.
1970 Federal Home Loan Mortgage Corporation (Freddie Mac) is chartered by an act of Congress, as a GSE, to buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market. The average cost of a new home in 1970 is $26,600 [2] ($140,582 in 2007 dollars). From 1960 to 1970, inflation rose from 1.4% to 6.5% (a 5.1% increase), while the consumer price index (CPI) rose from about 85 points in 1960 to about 120 points in 1970, but the median price of a house nearly doubled from $16,500 in 1960 to $26,600 in 1970.
1974: Equal Credit Opportunity Act imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age.
1977: Community Reinvestment Act passed to encourage banks and savings and loan associations to offer credit to minority groups on lower incomes or owning small businesses 12 U.S.C. § 2901 et seq.).[3][4] Beforehand, the companies had been engaging in a practice known as redlining.
July, 1978: Section 121 allowed for a $100,000 one-time exclusion in capital gain for sellers 55 years or older at the time of sale.[5]
1980: The Depository Institutions Deregulation and Monetary Control Act of 1980 granted all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts, but with little regulatory oversight of competing banks; also exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits.[6] The cost of a new home in 1980 is $76,400 [7] ($189,918 in 2007 dollars).
1981: The Section 121 exclusion, allowing for a one-time exclusion in capital gain for sellers 55 years or older at the time of sale, was increased from $100,000 to $125,000.[5]
1981: Each Federal Reserve bank establishes a Community Affairs Office to ensure compliance with Community Reinvestment Act.[8][9]
1985–1991: Savings and Loan Crisis caused by rising interest rates and over development in the commercial real estate sector, and exacerbated by deregulation of savings and loan lending standards and a reduction in capital reserve requirements from 5% to 3%.[citation needed]
1986: The Tax Reform Act of 1986 eliminated the tax deduction for interest paid on credit cards, encouraging the use of home equity through refinancing, second mortgages and home equity lines of credit (HELOC) by consumers.[10]
1986–1991: New homes constructed dropped from 1.8 to 1 million, the lowest rated since World War II.[11]
1989: One-month drop in sales of previously owned homes of 12.6 percent.;[12] Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) enacted which established the Resolution Trust Corporation (RTC), closing hundreds of insolvent thrifts and moved regulatory authority to the Office of Thrift Supervision (OTS); required federal agencies to issue Community Reinvestment Act ratings publicly.[13]
1990: The average cost of a new home in 1990 is $149,800 [14] ($234,841 in 2007 dollars).
1991–1997: Flat Housing prices.
1991: US recession, new construction prices fall, but above inflationary growth allows them to return by 1997 in real terms.
[edit]1992 - 2000

1992:Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them.[15][16]
1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956 that regulated the actions of bank holding companies.

.
1995: New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race; encourage community groups to complain to banks and regulators by allowing community groups that marketed loans to collect a brokers fee;[17] Fannie Mae allowed to receive affordable housing credit for buying subprime securities.[16]

CONT`D...

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


44 posted on 11/23/2012 4:46:21 PM PST by Para-Ord.45
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To: supercat
It sounds like you know what you are talking about.

A problem with tossing around terms like LIBOR and market to market is that oftentimes neither the speaker nor the reader knows what these terms mean. Many readers are reluctant to admit their ignorance. The speaker is presumed to know what he is talking about, when he really does not. From this elevated position, he can then blame Bush or pursue any, oftentimes unrelated, pet peeve he may have.

I did read up on market to market a long time ago. My recollection is that “it sounds good” but, as so often is the case, really is not such a sound approach to be used on a uniform basis.

45 posted on 11/23/2012 4:48:54 PM PST by ChessExpert (The unemployment rate was 4.5% when Democrats took control of Congress in 2006. What is it today?)
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To: ex91B10
Yes, was an attempt by the Democrats to make home ownership an entitlement. To accomplish this lax loan standards were created and then when even these low standards were not met it was ignored. Fraud on loan applications was not only ignored it was encouraged (by acorn).

Frank and Dodd blocked all attempts to clean up this mess and the media failed to inform the public the truth about what was happening.

46 posted on 11/23/2012 4:59:33 PM PST by TruthWillWin (The problem with socialism is that you eventually run out of other peoples money.)
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To: Liz
Oh, yes. The paddy wagon don't come when two ladies of the evening in the bordello are close friends of the mayor.
47 posted on 11/23/2012 5:06:14 PM PST by danielmryan
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To: ex-Texan
This was a multi-level fraud from the get go and nobody wants to point the finger of blame squarely where it belongs.

Yes, all of this is true. However, as so often happens, when the finger pointing process gets to a certain point where a villain can be reasonably assigned to take the blame, the process stops short of the actual perpetrators. I will attempt to explain.

As a retired banker whose career started in the 70's, I was witness to the planting of the actual seeds of this debacle. In those days, the portion of a bank's total loan portfolio (personal loans, corporate loans, credit card loans, mortgage loans et.al.) that was considered to be the most secure from loss was the home mortgage portfolio. At the end of every year when bank management was required by safe and sound banking regulations to establish reserves for the purpose of covering future potential losses of each of its separate and distinct loan portfolios the largest reserves were set aside for the riskiest loans (as determined by past experience). Unsecured loans (credit cards, etc.) posed the greatest risk to any bank. With good reason, the interest rates charged on those loans were considerably higher than other asset classes secured by some form of collateral. Collateral for those loans came in many different forms, assignments to physical property, life insurance, personal guarantees of third parties, the actual real estate being loaned against, being some of the most obvious.

Home mortgage loan were deemed to be the single most riskless of all the bank's various loan portfolios for the simple reason that a borrower had to come up with a significant equity stake in the form of a down payment of at least 20% in most cases. The borrower also had to demonstrate a solid financial ability to repay the loan as determined by annual income and the availability of other financial assets which could be easily converted to cash should the need arise. Over the years banks were able to develop a systematic series of criteria which when applied to each individual loan would satisfy bank management that there was a very good probability the loan would be paid on time and in the full amount. Foreclosure was not only a very rare occurrence but also had a devastating effect on the borrower's financial future. Home mortgage borrowers would do anything within their power to avoid default. Banks would normally book the mortgage and hold it in their own possession until it was paid off in full. Yes, it was possible to sell some of these loans to a government agency, but only those loans considered to be the least risky would be accepted under these limited programs.

So how could this situation mushroom into the financial disaster of 2007 and 2008? Quite simply, because the government mandated an easing of the time honored home mortgage lending practices that had served the financial community for so long. In 1977, the Democrat dominated Congress passed the Community Reinvestment Act (CRA) to encourage banks to lend to customers who did not meet the time honored lending criteria that served the banking community so well in the past. Part of the Act also required the bankers not to abandon "safe and sound" lending practices. In essence the Act said "abandon safe and sound banking criteria but, at the same time, don't become unsafe and unsound." Every banker with any semblance of financial acumen came to the same conclusion, "How the hell do you do that?"

The unanimous uproar of the objecting bankers caused the Administration to provide bankers with an outlet for those loans nobody wanted. Federal Agency criteria for accepting purchased loans were relaxed in order to provide an outlet to the banks for these toxic assets. The mortgage-backed securities market exploded as new products were developed on the behalf of the government's tax payer funded agencies who wanted to reduce the risks of their congressional mandated toxic portfolios. It is at this point that the professor's story begins (having avoided any mention of the above narrative). Yes investment bankers (Goldman Sachs, Bear Stearns, Lehman Brothers, etc.) saw an opportunity to make money through the development of derivative securities (that no one really understood) in order to spread the risk for the government directed relaxed credit standards. Yes, the investment vehicles were as flawed as the underlying mortgage loans. And, yes, the investment bankers did not disclose the underlying risks to the investors possibly because they either did not recognize risk or didn't want to (or couldn't) stop the money making gravy train. In the meantime, it became almost impossible to determine the originators of the loans, further obscuring the risk.

The long and the short of this whole debacle had its ultimate origin with the government. Just another failed government initiative like Social Security and Medicare. And here comes Obamacare.

48 posted on 11/23/2012 5:14:46 PM PST by immadashell
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To: elkfersupper

You’re getting bad info, buddy.

Libor is not set by consensus. Libor is set by day-to-day market transactions. At least that’s the way it’s meant to be set.

The UK Financial Conduct Authority, led by Martin Wheatley, is taking down the British Bankers’ Association (BBA) overseeing Libor. Both US and British regulators have fined Barclays £290m. That’s just the start. By the time all is said and done, that number could easily top £30b.

The banking conspiracy is widespread and will ensnare a good number of bankers in the US and UK. The UK High Court is not pleased and is demanding some very embarassing information. This is a major scandal.


49 posted on 11/23/2012 5:26:13 PM PST by sergeantdave (The FBI has declared war on the Marine Corps)
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To: ChessExpert; supercat
He definitely knows what he's talking about, which is a real blessing in this kind of an age. One of the advantages of economic fascism for gov't controllers is that it confuses the bejeezus out of people who are used to thinking in the old framework of "business vs government."

"It's the bankers' fault. Pure, unadulterated greed."

"Nope, it's the government's fault. Too many NINJA loans."

"It's the government's fault for not regulating those bastids."

[And anon]

A full and reasonably complete account of the mess will ostensibly be "balanced," but it really will provide a blow-by-blow view of the new economic fascism.

In a very real sense, a fascist is a socialist who's convinced himself that he's a capitalist. The "market," to the fascist mind, is an instrument for achieving socialist goals that works better than outright socialism. This mentality dovetails with fascist economic policy: businesspeople as servants of the State who have to be favoured because they work on incentives.

50 posted on 11/23/2012 5:28:07 PM PST by danielmryan
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