Posts Tagged ‘securities’

More Proof Democrats Destroyed The Economy In 2008: The Ongoing Fannie Mae/Freddie Mac Disaster

November 8, 2010

Who destroyed the economy in 2008?  Democrats say it was Bush.  Why?  Well, because he was president, that’s why.

Why – when applying the same logic – Barack Obama STILL isn’t responsible for any of his economic mess fully two years after George W. Bush left office is anybody’s guess.

But stop and think.  The primary cause for the 2008 economic meltdown was a downturn in the housing market and the underlying mortgage market.

At the core of that meltdown was GSEs (that’s “Government Sponsored Enterprises” to you) Fannie Mae and Freddie Mac.

The problem with Fannie Mae and Freddie Mac has always been that it was – and remains – a social welfare institution masquerading as a financial institution.  And they have made beyond-godawful “financial” decisions because their true loyalty has always been with socialist policies rather than financial ones.

Let’s look at Fannie and Freddie’s current picture:

Fannie, Freddie’s $685B fix
Bloomberg
Last Updated: 11:54 PM, November 4, 2010
Posted: 11:54 PM, November 4, 2010

Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the US covers losses and overhauls the housing-finance system, Standard & Poor’s said.

Costs for resolving the two government-sponsored entities could reach $280 billion, including $148 billion already delivered under a US Treasury Department promise of unlimited support, New York-based S&P said yesterday in a research report. The government may spend an additional $405 billion to capitalize a replacement for the two companies, which own or insure more than half the US mortgage market.

“It appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement,” S&P said, citing the GSEs’ growing portfolio of unsold homes, a sluggish economy, high unemployment, the prospect of rising foreclosures and billions in legacy losses.

Treasury Secretary Timothy F. Geithner, who has said there is a strong case to be made for continued US involvement, has promised to deliver the Obama administration’s plan to overhaul the housing-finance system by the end of January. Republican lawmakers, who will take control of the House of Representatives in January, have called for the government to end its support for Washington-based Fannie Mae and Freddie Mac, of McLean, Va.

“Although federal authorities have taken no concrete public steps toward sponsoring a GSE alternative, Standard & Poor’s believes that it’s a useful exercise to consider how much such a recapitalization might cost taxpayers,” the report said.

$685 BILLION.  That’s quite a mess.

Did it just happen?  Hardly.  This was going on for years.  This was what caused the subprime crisis that destroyed our economy in 2008.

Let’s survey the record.  According to record provided by The New York Times, Fannie and Freddie were in huge trouble PRIOR TO the economic collapse.  And their holdings were so massive that there is simply no reasonable way that one can maintain that their crisis didn’t directly contribute to the greater crisis to be revealed.  Read the article dated July 11, 2008:

Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.

A timeline of the subprime loan crisis of 2008 clearly reveals that it was Fannie Mae’s collapse that started the entire mess rolling downhill.  From Wikipedia:

September 2008

    • September 7: Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.’s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them.[151][152]
    • September 14: Merrill Lynch is sold to Bank of America amidst fears of a liquidity crisis and Lehman Brothers collapse[153]
    • September 15: Lehman Brothers files for bankruptcy protection[154]
    • September 16: Moody’s and Standard and Poor’s downgrade ratings on AIG‘s credit on concerns over continuing losses to mortgage-backed securities, sending the company into fears of insolvency.[155][156] In addition, the Reserve Primary Fund “breaks the buck” leading to a run on the money market funds. Over $140 billion is withdrawn vs. $7 billion the week prior. This leads to problems for the commercial paper market, a key source of funding for corporations, which suddenly could not get funds or had to pay much higher interest rates.[157]
    • September 17: The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy.
    • September 18: Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: “If we don’t do this, we may not have an economy on Monday.”[158]
    • September 19: Paulson financial rescue plan is unveiled after a volatile week in stock and debt markets.

Democrats who bother to offer any reason at all why “Republicans got us into this mess” claim that the Republicans refused to regulate and reform the economic sector.

Well, let’s dig a little further.  Was it George Bush who refused to regulate or reform?

Hardly.

From US News & World Report:

Seventeen. That’s how many times, according to this White House statement (hat tip Gateway Pundit), that the Bush administration has called for tighter regulation of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

That’s right.  George Bush tried SEVENTEEN TIMES to reform and regulate Fannie Mae and Freddie Mac, the agencies at the epicenter of the economic crisis.

When did this thing start?  Under Bush?  Not according to The New York Times, as I have pointed out before in a previous article.

From the New York Times, September 30, 1999:

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

More.  Again from the New York Times, September 30, 1999:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

What do we have, even in the pages of the New York Times?  A prediction that as soon as the economy cooled off, the mortgage market would explode like a depth charge and the government would have to step in to prevent a catastrophe.  And from a Clinton program, at that.

The same man – Peter Wallison – who had predicted the disaster from 1999 wrote a September 23, 2008 article in the Wall Street Journal entitled “Blame Fannie Mae and Congress For the Credit Mess.”

So this disaster began under Bill Clinton.  Specifically, it began in the very final years of the Clinton administration.  Interestingly, at the same time that the Dot-com bubble was getting ready to explode on Clinton’s watch.  Clinton got all the credit for a great economy, and Bush got to watch 78% of the value of Nasdaq destroyed just as he was taking office.  $7.1 TRILLION in wealth was vaporized (43% of the the Market Capitalization of the Dow Jones Wilshire 5000 Full Cap between 2000 Q1 and Q1 2003).  Bill Clinton handed George Bush a massive economic disaster (made even worse by the shocking 9/11 attacks), and Bush turned economic calamity into the longest consecutive period of job growth (52 straight months) in history.  In diametrical contradiction to all the lies that you have  heard from Democrats and from a mainstream media propaganda machine that often puts Joseph Goebbels to shame

What did George W. Bush do to deal with the necessary regulation and reform of these government-subsidized behemoths Fannie and Freddie?

Read what the New York Times said back in September 11, 2003:

WASHINGTON, Sept. 10— The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

So Bush WANTED to regulate and reform the industry that would destroy the economy five years later, again, in contradiction to a blatantly dishonest and ideologically liberal and biased media.  Bush didn’t “refuse to regulate.”  Bush TRIED to provide the necessary regulatory steps that could have averted disaster.

And who blocked those regulations and reforms that Bush tried to provide?  None other than Barney Frank and his Democrat buddies:

These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Democrats blocked reform and regulation of Fannie and Freddie.  They threatened to filibuster any attempt at regulation and reform.  Meanwhile John McCain wrote a letter in 2006 urging reform and regulation of the GSEs.  He said:

Congress chartered Fannie and Freddie to provide access to home financing by maintaining liquidity in the secondary mortgage market. Today, almost half of all mortgages in the U.S. are owned or guaranteed by these GSEs. They are mammoth financial institutions with almost $1.5 Trillion of debt outstanding between them. With the fiscal challenges facing us today (deficits, entitlements, pensions and flood insurance), Congress must ask itself who would actually pay this debt if Fannie or Freddie could not?

And it came to pass exactly as John McCain warned.

Because of Democrats.  Who were virtually entirely to blame for the disaster that ensued as a result of their blocking of reform and regulation.

What did Democrats do with the mainstream media’s culpability?  They falsely dropped the crisis at the feet of “greedy” Wall Street.  But while examples of Wall Street greed abound, the liberal intelligentsia deliberately overlooked the central and preceding role of Democrat-dominated Fannie Mae and Freddie Mac.

Here’s how the mess actually happened:

The New York Times acknowledged that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac “buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.”

And the Los Angeles Times on May 31, 1999 describes how this process turned into a bubble, as more begat more, and then more and more begat more and more and more:

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more. . . .

In a nutshell, Fannie and Freddie, in their role as Government Sponsored Enterprises, bought tens of millions of mortgages, and then repackaged them into huge mortgage-backed securities that giant private entities such as Bear Stearns, AIG and Lehman Brothers purchased.  What made these securities particularly attractive to the private banking entities was that these securities were essentially being sold – and had the backing – of the United States government.  Fannie Mae and Freddie Mac, again, are Government Sponsored Enterprises.

Here’s the process:

The Role of the GSEs is to provide liquidity and stability to the U.S. housing and mortgage markets. Step 1 Banks lend money to Households to purchase and refinance home mortgages Step 2 The GSEs purchase these mortgage from the banks Step 3 GSEs bundle the mortgages into mortgage-backed securities Step 4 GSEs sell mortgage-backed and debt securities to domestic and international capital investors Step 5 Investors pay GSEs for purchase of debt and securities Step 6 GSEs return funds to banks to lend out again for the issuance of new mortgage loans.

Now, any intelligent observer should note a primary conflict that amounts to a fundamental hypocritical contradiction: the GSE’s role was to “provide stability,” and yet at the same time they were taking on “significantly more risk” in the final year of the Clinton presidency.  What’s wrong with this picture?

The GSEs Fannie Mae and Freddie Mac were designed to bundle up the mortgages into mortgage backed securities and then sell them to the private market.

Fannie Mae is exempt from SEC [Securities and Exchange Commission] regulation. Which screams why Bush wanted to regulate them.  This allowed Fannie Mae to bundle up mortgages, which were then rated AAA with no requirement to make clear what is in the bundle.  Which screams why Bush wanted to regulate them.

This is what allowed the toxic instruments that have been sold across the world to proliferate.  And then to explode.  It also created a situation where money institutions did not know and could not find out whether potential inter-bank business partners were holding these “boiled babies on their books, complete with a golden stamp on the wrapping,” rather than safe instruments.  This then inclined banks to a natural caution, to be wary of lending good money to other banks against these ‘assets’.  And thus banks refused to lend to one another.

And it was Democrats, not Bush, and not Republicans, who were all over this disaster that destroyed our economy in 2008.

We were led by a pathologically dishonest media to believe that Republicans had created this mess, when it fact it had been Democrats.  And so we gave the very fools who destroyed our economy total power.

And what have they done in the two years since?

They made bad far, far worse.

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Fed Changes Mind After Changing Mind, Monetizing Debt Again As America Flushes Way To Ruination

August 12, 2010

First, the New York Times headline:

Fed to Buy U.S. Debt, Saying Recovery Has Slowed
August 10, 2010, 2:19 pm

The Federal Reserve acknowledged Tuesday that its confidence in the economic recovery had dimmed, and it announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities, The New York Times’s Sewell Chan reports from Washington.

Bu bu but I thought Barry Messiah said this would be the summer of economic recovery.  I thought Barry Hussein had kissed the economy with his beatific wonderfulness and made it all better.

The fourth paragraph in the Slimes article underscores the fact that the Keystone cops of the Obama administration have absolutely no idea what they’re doing:

The Fed’s new stance marked the completion of a turnabout from a few months ago, when officials were discussing when and how to eventually raise interest rates and gradually shrink the $2.3 trillion balance sheet the Fed amassed through its response to the 2008 financial crisis.

Ben Bernanke came out back in February and had this finance fit:

Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to “print money” to help Congress finance the exploding U.S. national debt.  In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially.  This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by “buying” the majority of new U.S. government debt that has been issued.  But now the fat cats over at the Federal Reserve have apparently changed their minds.  Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is “not going to monetize the debt”.So why is the Federal Reserve changing course?

Well, have no fear: the Federal Reserve is Re-changing course.  Like a boomerang that comes back around to smack an ignorant fool right in the head.  Perhaps they have come to realize that the U.S. economy is about to flush down the drain and plunge into a deep, dark hole, and they figure the fall might be softer if we land on giant piles of worthless currency.

Yes we’ll monetize the debt.  Oh no we won’t.  Oh yes we will.  Stop arguing with me!  But I am you!

I thought the following was a good article due to its provision of a historic context for today’s Fed decision:

Fed begins monetizing the deficit

The Federal Reserve, in announcing the results of this week’s meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice – wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities – is a form of monetizing the debt. The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson’s efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason – perhaps the major reason – why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.

The market was expecting some sort of monetary stimulus, but not this. The expectation was that the Fed would renew its “quantitative easing” program involving Fannie Mae and Freddie Mac securities – a program designed to push down long term mortgage rates. That program was successful inasmuch as mortgage rates are at record lows, but it left the Fed with well over a trillion dollars of these securities on its balance sheet. Fed officials have lately been pondering publicly how to get rid of these securities, and apparently have concluded they can’t under present market conditions without forcing mortgage rates back up again, which would only hurt the housing market. Instead, these officials have concluded that the Fed has no choice but to hold on to these securities until they mature, which is well over 10 years from now for the portfolio.

The Fed receives billions of dollars of principal and interest payments every year on this portfolio, and what to do with this cash has always been open for discussion until now. But using principal proceeds from these securities to monetize the government debt is fraught with risk. For one, should the housing market start to weaken again and foreclosures rise from current levels, the Fed will be sitting on billions of dollars of credit losses on its portfolio. This could eat up most if not all of the profit it would otherwise earn on this portfolio. Second, older investors have memories of the nasty inflationary consequences the last time the Fed monetized the debt, and the market has become very skittish about the risk of inflation, and maybe even hyperinflation ala Weimar Germany, that could result from the enormous fiscal and monetary stimulus put into the economy since 2007.

In terms of these risks, the best thing the Fed has going for it at the moment is that the pricing problem facing the current economy is not inflation, but deflation. A growing number of economists, and even some Fed governors, are worrying outright about deflation, but at least in a deflationary environment the Fed is given a lot more leeway to monetize the debt and build up its balance sheet as a consequence. The Fed press release today did not mention deflation per se, but the FOMC no longer described the economy as “progressing”, as it did in June. Instead, the Fed sees an economy with substantial slack, a stagnant housing market, repressed earnings power for workers, and very low inflation.

The bond market was happy to buy Treasuries on this news, concentrating in the 2 to 10 year maturities, in anticipation of higher prices (and thus lower yields) once the Fed begins actively purchasing. So far, in other words, the bond market sees no risk of inflation, much less hyperinflation, and is content to see yields continue to head to record low levels. Such excessively low yields on government bonds have only been seen in deflationary economies like Japan has experienced for nearly two decades. This is in essence what the bond market is forecasting for the US economy.

The stock market, which has been on a tear since early July, took this news in stride, but time and past experience is weighing heavily on this stock rally. When bond yields fall to record lows, this has never boded well for equities. In a deflationary economy, stock prices are one of the main victims, and the US stock markets have so far shown no significant adjustment downwards to reflect deflation. Stocks may have some serious “catching up” to do.

At the least, we can say we are no longer in that environment in the spring when Fed governors were talking seriously about how they were going to remove all their monetary stimulus now that the economy has recovered. Instead, we are witnessing yet another round of monetary stimulus, a recognition by the Fed that their previous efforts have failed to ignite a sustainable recovery.

All this from the Federal Reserve, an entity that is neither “federal” nor a “reserve.”  It is a private bank that issues currency based on fiat of delegated institutional power.  And what it is doing now is akin to photocopying a dollar bill to pay a credit card bill.  Another analogy would be if you were facing bankruptcy, and decided to start buying your own furniture from yourself.

Mind you, this is only partly the Federal Reserve’s fault.  They are in an impossible position as the Failure-in-Chief continues a path of spending America into collapse, and they have to figure out how to finance Obama’s addiction.

The Obama administration alternately fearmongered and promised that if the stimulus was passed that unemployment would not rise above 8%.  They lied.  The rate has been dropping from an earlier high exceeding 10% only because discouraged workers who give up are paradoxically dropped off the roles and aren’t counted.  Then they spent months creating pure fictions such as “created or saved” as “evidence” that Obama’s failed policy had succeeded.

To quote:

“One can search economic textbooks forever without finding a concept called `jobs saved.’ It doesn’t exist for good reason…” – Allan Meltzer, professor of political economy

“There is no way to measure how many jobs are saved.” – Harvard economics Professor Gregory Mankiw

Then Obama spent months telling us that the economy was recovering when it really wasn’t, culminating in his bogus “summer of economic recovery.”

This is an administration that falsely takes credit for a false recovery even as they falsely blame Bush and refuse to accept responsibility for their own policies.  It’s “win, we win, lose, Bush loses.”

These people should have zero-point-zero-zero credibility.

Barney Frank And Democrat Party Most Responsible For 2008 Economic Collapse

August 10, 2010

I don’t want to ridicule Barney Frank on account of his weight.  Suffice it to say he is easily able to pull off the two faces he routinely wears, and the two sides he routinely takes.

Here’s the recent side of Barney Frank:

Frank: “well one of my biggest differences with the Bush administration, even with the Clinton administration, was that they overdid that. I have always been critical of this effort to equate a decent home with home ownership. I think we should have been doing more to provide rental housing, my efforts have been to try and get affordable rental housing I was very much in disagreement with this push into home ownership and I think the federal government should not be artificially doing that. The goal is for people to have decent housing and I think beginning in the Clinton administration, exacerbated by Bush, we pushed people too much into home ownership…”
– Barney Frank, May 20, ‘2010 on CNBC.

And here’s Frank from 2005 documenting the fact that Barney Frank in 2010 is a rank liar:

“This is a very important resolution, particularly at this time, because we have, I think, an excessive degree of concern right now about home ownership and its role in the economy.
Obviously, speculation is never a good thing. But those who argue that housing prices are now at the point of a bubble seem to be missing a very important point. Unlike previous examples, where substantial excessive inflation of prices later caused some problems, we are talking here about an entity, home ownership, homes, where there is not the degree of leverage that we have seen elsewhere.

This is not the dot-com situation. We had problems with people having invested in business plans for which there was no reality and people building fiber-optic cable for which there was no need. Homes that are occupied may see an ebb and flow in the price at a certain percentage level, but you will not see the collapse that you see when people talk about a bubble.

So those of us on our committee in particular will continue to push for home ownership.
– Barney Frank, 2005

link
Video Link

[I found these quotes at US Politics Online].

You’re right, Barney.  It wasn’t the Dot-com situation.  It was a hundred times WORSE than the Dot-com situation, even given as bad as the Dot-com bubble was.  And yeah, you sure were right when you said there wouldn’t be a collapse, weren’t you?

So first of all, we have Barney Frank – liberal Democrat par excellence – acknowledging that the bad policy that led to the mortgage market meltdown was actually a CLINTON policy that Bush merely continued (most likely because he knew he’d be called a “racist” the moment he ended a program that gave billions of dollars to minorities to buy homes they couldn’t afford).

From the New York Times, September 30, 1999:

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

It’s beyond asinine that Democrats blame Bush for ruining the economy, and praise Clinton as having the mostest wonderfulest economy ever, when it was a Clinton program that ruined the Bush economy.  But that’s the mainstream media narrative for you.

It’s ironic that Frank in hindsight so laughably compared the housing mortgage bubble that brought down the economy in 2008 to the Dot-com bubble that brought down the economy just as Clinton was leaving office.  Because that’s TWO giant economy-killers that “Mister Wonderful Clinton” inflicted on George Bush.  The Clinton-era Dot-com crash ultimately destroyed 78% of the Nasdaq composite.  Clinton benefited with a huge market surge, and Bush paid with a huge market collapse that began taking place while the handprint on the Bible from Bush’s oath of office was still warm.

So Barney Frank reminds us that the destruction of the Bush economy was bookended by massive Clinton failures – the Dot-com bubble collapse in 2001 and the housing market bubble collapse in 2008.  And Clinton was never blamed for either of them by the propagandist mainstream media.

The second thing you can notice is that Democrats like Barney Frank – who were so quick to pounce all over the mortgage meltdown and blame Bush for it – were not only the ones who created the problem, but were the ones who defended the problem.

What’s the Democrat-mainstream media-created narrative for why we had the 2008 collapse?  Republicans refusing to regulate?  Read what the New York Times said back in September 11, 2003:

WASHINGTON, Sept. 10— The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

So Bush WANTED to regulate, in contradiction to all the lies that you heard.

And who blocked those regulations?  Omigosh, it was Barney Frank and his Democrats.

These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

You would find if you bothered to look at the facts that Bush demanded reform and regulation of Fannie Mae and Freddie Mac SEVENTEEN TIMES during his presidency.  And that Democrats refused to regulate the GSEs and even threatened filibusters against regulation.  Not that the mainstream media is honest enough to report the truth.

You would find if you bothered to look at the facts that financial experts literally predicted that the Clinton-birthed Fannie and Freddie expansion would ultimately explode.

Again from the New York Times, September 30, 1999:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

What do we have, even in the pages of the New York Slimes?  A prediction that as soon as the economy cooled off, the mortgage market wold explode like a depth charge and the government would have to step in to prevent a catastrophe?  From a Clinton program?

The same man – Peter Wallison – who had predicted the disaster from 1999 wrote a September 23, 2008 article in the Wall Street Journal entitled “Blame Fannie Mae and Congress For the Credit Mess.”

The New York Times acknowledged that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac “buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.”

And the Los Angeles Times on May 31, 1999 describes how this process turned into a bubble, as more begat more, and then more and more begat more and more and more:

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more. . . .

In a nutshell, Fannie and Freddie, acting as Government sponsored enterprises, bought tens of millions of mortgages, and then repackaged them into huge mortgage-backed securities that giant private entities such as Bear Stearns, AIG and Lehman Brothers purchased.  What made these securities particularly attractive to the private banking entities was that these securities were essentially being sold – and had the backing – of the United States government.

Here’s the process:

The Role of the GSEs is to provide liquidity and stability to the U.S. housing and mortgage markets. Step 1 Banks lend money to Households to purchase and refinance home mortgages Step 2 The GSEs purchase these mortgage from the banks Step 3 GSEs bundle the mortgages into mortgage-backed securities Step 4 GSEs sell mortgage-backed and debt securities to domestic and international capital investors Step 5 Investors pay GSEs for purchase of debt and securities Step 6 GSEs return funds to banks to lend out again for the issuance of new mortgage loans.

Now, an intelligent observer would note a conflict: the GSE’s role was to “provide stability,” and yet they were taking on “significantly more risk” in the final year of the Clinton presidency.  What’s wrong with this picture?

The GSEs Fannie Mae and Freddie Mac were designed to bundle up the mortgages into mortgage backed securities and then sell them to the private market.

Fannie Mae is exempt from SEC [Securities and Exchange Commission] regulation. Which screams why Bush wanted to regulate them.  This allowed Fannie Mae to bundle up mortgages, which were then rated AAA with no requirement to make clear what is in the bundle.  Which screams why Bush wanted to regulate them.

This is what has allowed toxic instruments that have been sold across the world.  It also created a situation where money institutions did not know and could not find out whether potential inter-bank business partners were holding these “boiled babies on their books, complete with a golden stamp on the wrapping,” rather than safe instruments.  This then inclined banks to a natural caution, to be wary of lending good money to other banks against these ‘assets’.  And thus banks refused to lend to one another.

John McCain wrote a letter in 2006 urging reform and regulation of the GSEs.  He said:

Congress chartered Fannie and Freddie to provide access to home financing by maintaining liquidity in the secondary mortgage market. Today, almost half of all mortgages in the U.S. are owned or guaranteed by these GSEs. They are mammoth financial institutions with almost $1.5 Trillion of debt outstanding between them. With the fiscal challenges facing us today (deficits, entitlements, pensions and flood insurance), Congress must ask itself who would actually pay this debt if Fannie or Freddie could not?

An of course, they could not pay their debts.  Fannie and Freddie basically went bankrupt and were taken over.  And they took a whopping share of the biggest financial institutions down with them.  Fannie is in the process of devouring nearly 400 billion dollars of bailout money from the American taxpayer.  And now – GREAT GOOGLEY MOOGLEYObama is planning to funnel yet another $800 BILLION through the same Fannie and Freddie who already destroyed us once.

And thus you had a financial disaster created by one William Jefferson Clinton and one Democrat Party.  And now a second act of economic destruction is being planned by Barack Obama.

The 2008 economic collapse that Democrats were elected to fix was itself created by Democrats who will now continue the very policies that created the disaster in the first place.

Democrats then demonized Bush for merely being there when the disaster happened.  When they had created the mess, and when they had refused to allow Bush to do anything to prevent a Democrat-created disaster that he and other Republicans saw coming, but ultimately lacked the courage to stop.

With Eyes Finally Wide-Open, Reconsider Why The Economy Collapsed In The First Place

December 31, 2009

We are now able to see that from the very beginning of the Obama administration, the Republican Party has again and again demonstrated that they were completely right and Democrats were completely wrong.  Whether you look at the stimulus, cap-and-trade, bogus climate change claims, health care, or terrorism, Americans now solidly agree that Republicans were represent the people; and that Democrats do NOT represent the people.

Right now, a solid plurality of Americans thinks the stimulus (that 99% of Republicans voted against) harmed the economy.  And the people are starting to realize what an ideological partisan slush fund the stimulus was (also predicted by Republicans).

When Obama was elected, unemployment was at 6.6%.  He promised that his stimulus would prevent unemployment from reaching 8%.  And now it’s at 10%, and it’s going to get higher.

Obama demagogued Bush’s spending.  But Bush deficits -bad as they were – were only 2-3% of GDP.  Obama’s deficits are 12.8% of GDP – which is five to six times higher.

Now that your eyes are finally beginning to open wide and see Obama and the Democrats for who and what they truly are, let me point out a few things about the past collapse.

What Americans – and particularly Americans who actually vote – need to realize is that Democrats were trying to do this kind of crap and play these kind of games all along.  They were trying to do it throughout the Bush years, when George Bush tried 17 times to regulate the out of control and Fannie-Mac-and-Freddie-Mae-dominated housing mortgage markets – and Democrats thwarted him over and over again.

Why do I mention the Government Supported Enterprises (GSEs) Fannie Mae and Freddie Mac?  Because they were at the very heart of the mortgage meltdown.

The LA Times writes on May 31, 1999 that:

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more. . . .

LaVaughn M. Henry, Ph.D. Director, U.S. Economic Analysis The PMI Group, Inc. December 9, 2008, pointed out:

The Role of the GSEs is to provide liquidity and stability to the U.S. housing and mortgage markets. Step 1 Banks lend money to Households to purchase and refinance home mortgages Step 2 The GSEs purchase these mortgage from the banks Step 3 GSEs bundle the mortgages into mortgage-backed securities Step 4 GSEs sell mortgage-backed and debt securities to domestic and international capital investors Step 5 Investors pay GSEs for purchase of debt and securities Step 6 GSEs return funds to banks to lend out again for the issuance of new mortgage loans.

It was steps 3-5 that messed us up.  Fannie and Freddie bought mortgages – including many mortgages that poor and minority homeowners couldn’t begin to afford under the mandate of the Community Reinvestment Act – bundled them such that no one could assess their risk, and then sold them to private companies such as Bear Stearns and Lehman Brothers.  Fannie and Freddie were exempt from SEC [Securities and Exchange Commission] regulations.   The GSEs could bundle up mortgages, which would then be rated AAA, with no requirement to make clear what was in the bundle.  Private companies believed that the bundled securities were guaranteed, since they were essentially being sold by the federal government.

But there were many who predicted that this system – created and maintained by Democrats – could explode.

From the New York Times in September 30, 1999:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.“

”From the perspective of many people, including me, this is another thrift industry growing up around us,”
said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” . . .

And that is precisely what happened.  There was a downturn (and there will ALWAYS be downturns, won’t there?), and Fannie and Freddie were so leveraged that they collapsed and caused the collapse of the entire industry.  Financial experts anxiously pointed out that a decline of only 1.3% would bankrupt Fannie and Freddie because they were leveraged to the tune of 60%? to 78%.

Democrats were the priests and acolytes of the GSE system.  They protected it, and they were the ones who pressed all the buttons and pulled all the levers.

Keven Hasset concludes an article titled, “How the Democrats Created the Financial Crisis“, concludes by saying:

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons.  Fannie and Freddie provided mounds of materials defending their practices.  Perhaps some found their propaganda convincing.

Watch this video showing how Goerge Bush and John McCain repeatedly warned of the economic collapse (length=4 min):

Watch this video of Democrats protecting and covering for Fannie Mae (length=8 min):

Here’s a video entitled “Burning Down the House: What Caused Our Economic Crisis?” (length=11 min)

And then we find that Barack Obama was in bed with Fannie and Freddie and their shockingly risky policies:

Who really exploded the economy in 2008, liberals or conservatives? Who do you think?  The liberal mainstream media allowed Democrats to blame George Bush simply because he was president at the time, never mentioning that the Democrats who controlled both the House and the Senate relentlessly opposed everything Bush tried to do; and it allowed Democrats to not have to account for the fact that they’d been in complete control of both the House and the Senate.  But remember that the economy went from outstanding to collapsed during the two years (2006-2008) that the Congress was under Nancy Pelosi and Harry Reid.  The unemployment rate was 4.4% when Republicans last ran Congress.  What is it now, three years of Nancy Pelosi and Harry Reid later?

Few people understand how huge Fannie and Freddie are, or how deeply burrowed they are in the mortgage industry.  But let me put it to you this way: the federal government now underwrites 9 out of 10 residential mortgages.

John McCain tried to warn us in 2006:

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. 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.

But he was ignored.

When George Bush first tried to regulate an already out-of-control liberal bastion of Fannie and Freddie, Barney Frank led the united Democrat opposition and said:

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

And just before Fannie and Freddie collapsed and brought down the entire housing mortgage industry with it creating the economic meltdown, Barney Frank – continuing to stop any regulation of Fannie and Freddie – said this:

REP. BARNEY FRANK, D-MASS.: I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.

Fannie Mae and Freddie Mac went completely bankrupt, and had to be bailed out by the government.  It had been Fannie and Freddie which had the sole authority to buy mortgages, bundle them into the mortgage-backed securities which ultimately exploded, and sell those securities to private companies (as I have already shown).  Just as it was Fannie and Freddie which had been the seller of subprime loans.

Democrats demonized and demagogued Republicans by blaming them for a mess that DEMOCRATS created.  And Republicans were to blame primarily because they didn’t do enough to stand up and courageously oppose the disaster that Democrats had created

A couple weeks ago the New York Times reported that Fannie and Freddie would get a whopping $800 billion to cover losses incurred under the Obama administration (and see another article on this $800 billion fiasco here):

Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now, according to people close to the talks, officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment.

But it turned out that that was wrong.  Fannie Mae and Freddie Mac weren’t going to get $800 billion.  That won’t be nearly enough.  They are going to get an unlimited amount of funding (potentially in the trillions):

From the Wall Street Journal, December 26, 2009:

The Obama administration’s decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie MaeFreddie Mac over the next three years and stirred controversy over the holiday.

A Newsbuster article, entitled, “Relief Without Limits,” provides an excellent resource of facts and commentary on this incredible and terrifying development.

Remember the righteous outrage of Democrats and the Obama administration over the compensation of CEOs of private banks?  The Democrats don’t seem to mind when Fannie and Freddie execs get huge compensation packages.

The monster rises yet again, and larger and uglier and more dangerous than it has ever been before.  And just like the first time it collapsed, Democrats are in total control of it.  Fannie and Freddie stock went up significantly as the news was announced.  Watch it dwindle back to zero by the end of 2010.

We’re facing another tsunami of foreclosures in 2010.  And three mortgages get worse for every single one that improves.

And even uber-liberal sources like the Huffington Post are acknowledging that Obama’s policies have utterly failed:

Anatomy of a Failed Foreclosure Program (dated 12-07-09)

Just how badly is President Obama’s $75 billion foreclosure program working out? Consider these newly-released numbers: Out of every 100 homeowners who came to JPMorgan Chase for help under the program, just 15 have or will likely receive a permanent payment reduction.

What happened to the other 85? For every 100 trial plans initiated from April through September 2009 under the Home Affordable Modification Program:

  • 29 borrowers did not make all required payments under their trial plan;
  • 20 borrowers did not submit all documents required for underwriting;
  • 31 borrowers submitted all required documents but the documents did not meet HAMP underwriting standards, due to such things as missing signatures or nonstandard formats;
  • 4 borrowers were or are likely to be rejected for undisclosed reasons;
  • 1 borrower will not or is not likely to get their payment lowered.

The data comes from the prepared remarks bank officials plan to make Tuesday before the House Financial Services Committee. The testimony was posted Monday on the committee’s website.

It adds up to a brutal illustration of just how the HAMP program, which is supposed to reduce troubled homeowners’ monthly payments to 31 percent of their income, is failing.

Failing.  As in “failing grade.”  As in failed Obama presidency.

You still don’t know the half of it.  Obama’s $75 billion mortgage modification bailout is costing taxpayers an average of $870,967 PER HOUSE when the average house is worth only $177,900.

Famed analyst Meredith Whitney predicted that unemployment would rise to 13% or higher primarily due to the failure to contain the failure to deal with the mortgage industry:

Unemployment is likely to rise to 13 percent or higher and will weigh on the economy for several years, countering government efforts to stabilize the banking industry, analyst Meredith Whitney told CNBC. […]

“We underestimate how much the whole economy is dependent on the mortgage industry, and that has to change,” Whitney said. “This is what happens when you delay the inevitable. We’re buying time here, but we’re not restructuring the economy.”

Under the radar, and against the objections of Republicans that was primarily covered only by C-SPAN, Democrats implemented and then fiercely protected policies that were almost guaranteed to doom our economy.  When the meltdown finally occurred, the same Democrats who created the black hole in the first place flooded the airwaves and blamed George Bush – whom they had already vilified and brought down through unrelenting attacks using the Iraq War as their main foil.

The propaganda worked, and Barack Hussein Obama – a politician who is more beholden to corrupt and frankly un-American entities like Fannie Mae and Freddie Mac, ACORN, and the SEIU than any president in history.

And now we’re truly paying for our stupidity.

Obama is taking the same policies that imploded our economy, and multiplied them by a factor of ten.  It’s only a matter of time before his policies create a rotten floor for our economy to plunge through all over again — only this time far, far worse than before.

Someone might say, “But look, Obama is rebuilding the economy.  He’s brought back the stock market, and things are getting better.”

First of all, they really aren’t getting better, and the Dow can drop a lot faster than it can rise (history lesson: there were several rises and crashes of the stock market during the Great Depression).  And second of all, if you loan me a few billion dollars to spread around, I can temporarily bring up the production of my local economy, too.

Just don’t expect either me or Barack Hussein to repay the loan when it comes due.

Obama has been compared – and has compared himself – to FDR.  We now know that for all of FDR’s popularity, his “reforms” during the Great Depression were massive failures which actually kept the United States in depression for seven years longer than if he’d done nothing at all.

Henry Morganthau, FDR’s Treasury Secretary, said in May 1939, after nearly seven years in office:

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot!”

In believing the propaganda and lies of the Democrats and Barack Obama, Americans may have well placed the nation in a hole that it very may well not be able to climb out of.