Skip to comments.A Subprime Loan Primer
Posted on 10/01/2008 11:25:35 AM PDT by ForGod'sSake
If you're interested in watching the "show" and don't have MS Office with Power Point, you can download a small PP viewer from Microsoft HERE. Works with most versions of Winders AFAIK.
this is good and funny
FWIW, the “show” doesn’t describe Fanny and Freddy’s involvement, but the principle is nearly the same. Wall Street may have been a little more creative in their zeal to peddle this junk.
Here is a quick look into 3 former Fannie Mae executives who have with the Democrats in Congress, brought down Wall Street.
Franklin Raines was a Chairman and Chief Executive Officer at Fannie Mae. Raines was forced to retire from his position with Fannie Mae when auditing discovered severe irregulaties in Fannie Mae’s accounting activities.
Raines left with a “golden parachute valued at $240 Million in benefits. The Government filed suit against Raines when the depth of the accounting scandal became clear.
The Government noted, “The 101 charges reveal how the individuals improperly manipulated earnings to maximize their bonuses, while knowingly neglecting accounting systems and internal controls, misapplying over twenty accounting principles and misleading the regulator and the public.
Tim Howard - Was the Chief Financial Officer of Fannie Mae. Howard “was a strong internal proponent of using accounting strategies that would ensure a “stable pattern of earnings” at Fannie. In everyday English - he was cooking the books. The Government Investigation determined that, “Chief Financial Officer, Tim Howard, failed to provide adequate oversight to key control and reporting functions within Fannie Mae,”
Raines and Howard resigned under pressure in late 2004.
Howard’s Golden Parachute was estimated at $20 Million!
Jim Johnson - A former executive at Lehman Brothers and who was later forced from his position as Fannie Mae CEO.
A look at the Office of Federal Housing Enterprise Oversight’s May 2006 report on mismanagement and corruption inside Fannie Mae, and you’ll see some interesting things about Johnson. Investigators found that Fannie Mae had hidden a substantial amount of Johnson’s 1998 compensation from the public, reporting that it was between $6 million and $7 million when it fact it was $21 million.”
Johnson’s Golden Parachute was estimated at $28 Million.
WHERE ARE THEY NOW?
FRANKLIN RAINES? Raines works for the Obama Campaign as Chief Economic Advisor
TIM HOWARD? Howard is also a Chief Economic Advisor to Obama
JIM JOHNSON? Johnson hired as a Senior Obama Finance Advisor and was selected to run Obama’s Vice Presidential Search Committee
IF OBAMA PLANS ON CLEANING UP THE MESS - HIS ADVISORS HAVE THE EXPERTISE - THEY MADE THE MESS IN THE FIRST PLACE.
Would you trust the men who tore Wall Street down to build the New Wall Street?
Jotti's malware scan 2.99-TRANSITION_TO_3.00-R1
Packers detected: -
Scan taken on 01 Oct 2008 18:35:34 (GMT)
A-Squared: Found nothing
AntiVir: Found nothing
ArcaVir: Found nothing
Avast: Found nothing
AVG Antivirus: Found nothing
BitDefender: Found nothing
ClamAV: Found nothing
CPsecure: Found nothing
Dr.Web: Found nothing
F-Prot Antivirus: Found nothing
F-Secure Anti-Virus: Found nothing
G DATA: Found nothing
Ikarus: Found nothing
Kaspersky Anti-Virus: Found nothing
NOD32: Found nothing
Norman Virus Control: Found nothing
Panda Antivirus: Found nothing
Sophos Antivirus: Found nothing
VirusBuster: Found nothing
VBA32: Found nothing
Summary: The file seems safe. I'm paranoid. :)
The trouble with this is that it fixes the blame on Really Smart Guys in the finance industry. It promotes class warfare instead of getting to the point. The point being that the government mandated preferential treatment to minorities by the home mortgage industry.
I got this in an email from a rabid Democrat. They would love to have people believe the problem was caused by lenders. It avoids the underlying pressure on those lenders from misguided affirmative action legislation instituted by Democrats.
Heh. Just because you're paranoid doesn't mean they really AREN'T out to get you...
You'll notice the caveat in my earlier post re the presentation's neglect of Fanny/Freddy, but your point is well taken. FWIW, a question in my mind that I haven't looked into is who came first with the subprimes, Wall Street or Fanny/Freddy. My suspicion is Fanny/Freddy. AND, as an aside, how much of Fanny/Freddy backed securities also ended up in separately packaged Wall Street instruments. Not that it matters, just an item of curiousity. I think I read on another thread or article somewhere that Fanny/Freddy has something like 65% of the subprime market under guraantees, but...
Time Line of a Financial Disaster
Fannie Mae is a GSE (Govt. Sponsored Entity) regulated by Congress.
Fannie Mae buys mortgages from other companies.
It is backed by the taxpayers for all losses, but keeps all profits.
President Clinton loosens Home Loan Requirements.
Banks begin making thousands of bad loans,0 down, no documentation, for 120%! (1998 2008).
Executives at Fannie receive huge bonuses if loan targets are met.
Franklin Raines and Jamie Garelick from the Clinton Administration are appointed to run Fannie Mae.
President Bush proposes a new oversight committee to clean up Fannie Mae, but Democrats derail the effort.
Rep. Melvyn Watt, (D-NC) Committee on Financial Institutions & Consumer Credit. stated, I dont see much other than weakening the bargaining power poorer families to get affordable housing.
An OMB investigation finds massive fraudulent bookkeeping at Fannie Mae.
False numbers triggered executive bonuses every year.
Congress holds no hearings, no one goes to jail, or is punished.
Fannie Mae gives millions to Democratic causes, examples: Jesse Jackson & ACORN.
Fannie Mae pays millions to 354 congressmen and senators, from both parties.
Who got the most money?
#1 Sen. Christopher Dodd, (D-CT) Chairman of the Banking, Housing, & Urban Affairs Committee
#2 Sen. Barack Obama, (D-IL)
Federal Financial Management Committee
#3 Sen. Chuck Schumer, (D-NY)
Chairman of the Finance Committee
#4 Rep. Barney Frank, (D-MA)
Chairman of the House Financial Services Committe
Franklin Raines & top execs are forced to resign from Fannie Mae.
They do not go to jail.
There is no media perp. walk.
They keep all of their bonuses
They finally pay $31.4 million in civil fines.
The Federal Housing Enterprise Regulatory Reform Act is sponsored by: #325 Sen. John McCain, (R-AZ)
Armed Services, & Commerce, Science, & Transportation
If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.
None of the top 4 recipients support the legislation.
The reform act is blocked by Democrats, never even making it out of committee.
None of the politicians return any of the money, tainted by fraud.
Fannie Mae & Freddie Mac go bankrupt and the govt. takes them over completely.
Lehman Brothers, goes bankrupt from investing in bad mortgages.
AIG get $85 million in loan guarantees, after insuring bad loans & projects.
Taxpayers will ultimately pay BILLIONS
Franklin Raines is now an advisor to the Obama Campaign which wants the govt. to take over more of the economy.
Did government involvement in the mortgage market work out?
How will even MORE government involvement make it better? Do you want to be Sweden?
McCain favors revising regulations & loan standards, selling off Fannie & Freddie.
Congressional Record, 5/25/06
Hannity & Colmes, Fox News, 9/16-9/17/08
Herald Tribune, 4/18/08
New York Times, 9/13/03
www. govtrack.com, 9/17/08
Prof. Dennis Jantz, 2008
And I should believe you why???
(You’re a rank amateur at this paranoid stuff, aren’t you?)
(of course that’s what you want us to believe, anyway.)
Key points on “Rescue” Plan from a Healthy Bank's Perspective
1. Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies, including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and raising interest rates too high.
2. There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.
3. While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well-run companies.
4. Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post-”rescue” punish the poorly run institutions and not punish the well-run companies.
5. A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed “rescue” plan.
6. This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.
7. The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, out of the blue guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.
8. Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bail out insurance companies, investment banks, hedge funds and foreign companies.
9. It is extremely unclear how the government will price the problem real estate assets. priced too low, the real estate markets will be worse off than if the bailout did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?
10. The proposed bankruptcy “cram down” will severely negatively impact mortgage markets and will damage well-run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house value, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.
11. Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990’s the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.
(My note: Under GAAP, the fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, other than in a liquidation. On the other side of the balance sheet, the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in a liquidation.)
12. The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.
13. The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.
14. Arbitrary limits on executive compensation will be self defeating. With these limits only the failing financial institutions will participate in the “rescue”, effectively making this plan a massive subsidy for incompetence.
FHA was a cover for some of this mess early on.
Entire artlice worth the read.
The title is HOME CHEAT HOME.
July/August 2000 Issue Mother Jones
[snip]Evans is among tens of thousands of low-income homeowners victimized by a scam called flipping that is being repeated every day in inner-city neighborhoods from Syracuse to Los Angeles. To resurrect blighted urban areas, the government sells abandoned houses to real estate investors for renovation. But some speculators simply slap on cosmetic repairs and flip the properties, reselling them for many times their true value. Because the FHA co-signs the loans, it gets stuck with the bill when homeowners cant pay the inflated mortgages. Last year the agency spent $6.5 billion to bail out 78,890 home loans that went bad-up 30 percent in three years. The foreclosed homes are seized, boarded up, and put back on the market, and the cycle starts all over again.
We have found flipping scams in every city weve investigated, says an official with the Department of Housing and Urban Development, which recently indicted 41 Realtors, lenders, and appraisers in California. What has me shaking is that we have these kinds of numbers on defaults and we are in a bull market.
Federal investigators call flipping more lucrative than bank robbery but it was mortgage bankers who lobbied to make the scheme possible. Historically, the FHA assigned independent appraisers to inspect houses and set a fair value. But lenders wanted to select their own appraisers. They claimed it would streamline the process. But it would also make it easier to find someone who would ignore shoddy repairs and approve jacked-up prices.
The industry certainly had plenty of clout on Capitol Hill. From 1991 to 1994, lenders handed out $2.3 million in campaign contributions, and the investment paid off. At a meeting of the Mortgage Bankers Association in 1993, the FHA unveiled a lender select policy allowing bankers to choose appraisers. The news was greeted by a standing ovation.
Because the FHA supports low-income home buyers with shaky credit, defaults on agency loans have always been above the industry average. But since lenders have been allowed to handpick their own appraisers, investigators say, foreclosures have skyrocketed.
Picking up some pingers from another thread. A bit cheesy but, FYI...
Feel free to pass it along....obviously the media is not doing their job.
But what should I tell the villagers?
The more I study this "crisis" the more I want to see some heads on pikes. The more I hear Obomber especially, but others as well say, it doesn't matter who gets credit for fixing the mess; that placing blame will not solve the problem, just makes me want to puke.
The fact that several Pubbies attempted, and Dims consistently blocked any efforts at corrective legislation just makes me want to puke.
The fact that GWB was not willing to commit political hari kiri by using the big hammer of regulation to roll back Clinton's directives, only gives me Maalox moments.
The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.
I don't understand his rationale behind this. Talk about a bureaucratic nightmare! Maybe this guy is in the real estate management business and figures the feral gummint would have to contract out this part of the operation.
An aside: I was in the mortgage business in Houston when the crunch hit there in '83 - '84. It was rumored that Texaco, due to its policy of taking their transferred employees out of their homes so they wouldn't be saddled with trying to maintain two mortgages, at least temporarily, when they moved, had more property under management than any of the largest property management companies in Houston. Can't vouch for the validity, but interesting nonetheless -- to me.
Well purchasing the real estate bonds would make things even worse and would do little to help anyone keep their homes, if that is the true intention behind the bailout.
Color me cynical, but since our feral government is all but out of the control of the proles anyway, call it a power grab to take over the financial institutions to control the markets. /tinfoil
Still in all, gotta wonder how far the subprime loans and securities backed by those loans would have gotten if Fanny/Freddy hadn't gotten into the game. With most of the regulators looking the other way, there may not have been much difference, except in the timing. Whatta mess!
Thank you Meek. Adding this to the Time Machine:
[Bailout Link Page]
In case I forgot to thank you ... =]
Wouldnt this mean more government control over businesses? The “mistake” was when the government stepped in and did ANYTHING, root cause analysis. IF the govt didnt say a word, it wouldnt have happened. This was purely introduced by President Clinton and allowed to happen under his cartel.