Saturday, September 27, 2008

Burning Down The American Dream

How is it that America finds itself on the edge of what establishment Washington and Wall Street see as financial ruin? This video, which has gone viral online the past two days, tells the story nicely in 10 minutes.


wall street journal article on fannie mae and freddie mac CLICKHERE


Roch101 said...

An interesting proposition taken to a superficial conclusion. Could the CRA have contributed to the housing bubble? Probably. Was it the only factor, certainly not. Money redeemed from the stock market highs of 2000 needed a place to go. Speculators and prime mortgages going to buy at inflated prices contributed. Additionally, flat wages and rising oil prices contributed to foreclosures as well.

But the most disingenuous part of this presentation though is where it concludes that Democrats are to blame. Leaving aside the Republican policies that contributed to rising oil prices and flat wages, saying that Democrats blocked reform of Fannie May and Freddie Mac in 2003 is simply laughable. We all know that the Republican president had a Republican majority in the House and Senate at that time.

Whether or not the proposed reforms would have, in fact, avoided the housing bubble, who knows? That the proposed reforms didn't happen with Republicans controlling government and blaming Democrats for it is pathetically ignorant.

Anonymous said...

, No one was blaming the Democrats for this mess until the MSM and all the liberal bloggers, started yelling about this being Bush's mess. This apparently superhuman president who can ride and point hurricanes can also destroy the largest economy in the world with no ones help. This is when the push back began.

Answer mone question: Why is the Democrats first and last answer to every problem to just throw more money at it? This is seen on every level of government. BB

Anonymous said...

thank you for this post. it is great!. Maybe it will enlighten some (Roch excluded of course). BB

triadwatch said...

roch there is a lot of blame to go around on this one but giving affordable home loans to people who can't afford the loans is a disaster that has bit us in the butt. Adjustable rate mortages was given to our family as an option 12 years ago. I told my wife hell no , and to see a lot of people only paying interest only on their mortgage is a disaster also.

to see the leaders of fannie mae and freddie mac get these golden parachutes after running the organizations in to the ground and to be a member of Obama's vp pick team in johnson seems to show where their allegience lies in the tank of the democrats. All you have to do is look about how much money Obama has gotten from fannie mae and freddie mac in past 4 years compared to McCain . Thanks for posting Roch.

triadwatch said...

bb, maybe just maybe we can enlighten roch to the right side of the issues . I mean right as in correct side of the issues.

triadwatch said...

Wall Street Journal

Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.

How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse....

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices....

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

Roch101 said...

Keith, 10 to 1 you got the "Wall Street Journal" article by email and not from The WSJ itself. I suspect the "article" never appeared in the WSJ, but if I'm wrong, you'll provide me with a link. I doubt this appeared in the WSJ because it gets the facts wrong.


"All the Republicans on the Committee supported the bill, and all the Democrats voted against it."

Well, common sense would tell you that, with a Republican controlled committee, if all the Republicans voted for the bill, it would have then gone to the full Senate for a vote. Curiously, the "article" doesn't report that.

Here's why: The bill was never voted on in Committee. The Republican chairman never brought it to a vote. The official record is here, where you can see a record of all actions taken on this bill. No vote was ever taken.

So, give me that link to the supposed WSJ article so I can tell them they got it wrong -- or write mack to the moron who sent you the chain email and tell him you don't appreciate being misinformed because it leads to your embarrassment.

triadwatch said...

well roch here is your 1 from the 10 to 1 odds it was in wall street journal, apologies to my credibility can be corrected.

triadwatch said...

I will put link on post for you

Roch101 said...

Fair enough, Keith. This opinion piece did appear in the WSJ. I still cannot verify it with the congressional record though. I've written to the authors and will let you know what I hear.

triadwatch said...

okey dokey let me know.

Roch101 said...

Okay, Keith, here's your update. First off, the apology you deserve. You indeed were citing something that appeared in the WSJ and I was wrong to insinuate that you had been had. Now, on to the issues.

I heard back from both of the column's authors. One informed me that the bill they were referring to was S.190. In describing that bill in their article, the authors may well be describing what happened in committee accurately, it is problematic though that, at this time, the official record doesn't verify their assertions. Here's why.

Thomas (the Library of Congress) shows the last action on this bill was an order to report it to the Senate with amendment. Such an order would indeed only happen with a majority vote of the committee. The odd thing though is that the record does not show that the bill was ever actually reported to the Senate. That might happen in two instances, as I understand the process:

1. A majority of the committee never agreed on the subsequent amended language.

2. The (Republican) chairman of the committee decided not to report the bill to the Senate.

A different set of records, (committee reports, also available on Thomas) would document who voted for a bill in committee and who voted against it. But here is another strange roadblock. A committee report for this bill cannot be found on Thomas.

I'll say it again, the authors of the WSJ article may have their facts straight, but the public record comes up short in verifying. I know you can relate to that, Keith, because I've seen your alarm bells go of when you find that some document that is supposed to be filed is missing.

Nonetheless, you might find it interesting to understand S.190 in context -- the good and the bad and why, ultimately Republicans share the "blame." As one of the WSJ article authors explained in an article in 2005, S.190 would have changed the way the GSEs financed their operations. Instead of allowing them to borrow money to lend to home buyers as they did, it would have required that the GSEs capitalize their operations by selling Mortgage Backed Securities (MBS). The idea being that it would lessen the GSEs exposure to fluctuating interest rates. It likely would have likely done. But, since the GSEs would still have to make good on the MBS, it's not clear at all that it would have saved them from vast defaults on the mortgages they were backing. Indeed, that is what the government is about to do with the bailout -- buy up the MBS that nobody wants to buy because of foreclosures.

S.190 also would have prohibited GSEs from owning MBS. This was probably a wise provision as, by hedging their loans against loss by buying securities backed by mortgage loans, the GSEs spread the risk, a good move as long as people were paying their mortgages, but it also left them more exposed to loss when people started to default in large numbers.

s.190 might have (or maybe not, hard to know) made interest rates higher and, consequently, limited the number of sub-prime mortgages made to begin with. Because of this possibility, these kinds of changes to the GSEs were opposed by the home building and real estate industries.

Here's a very important thing that Wallison tell us (link above) that better informs us about where we should direct our ire. Congressional action to make these changes, if one thought they were a good idea, was not even necessary. The Department of Justice ruled that the Department of the Treasury had the authority to dictate to the GSEs how they capitalize their operations. The Secretary of the Treasury, a Bush appointee, could have, of her own volition or at the direction of President Bush, insisted that the GSEs make the changes that S.190 would have made. This did not happen, obviously.

The bottom line is still what I originally asserted, that it is misguided to think that the blame for this lies solely with Democrats. There is, unfortunately, truly plenty of blame to go around.

triadwatch said...

roch thanks for the clarification and accept your apology. As I said in the 4th post at the beginning, "there is a lot of blame to go around".

I want bi partisan support from the politicians in washington which hasn't been happening. When you have Harry Reid and Nancy Pelosi at the helm, there isn't any room for bi partisan support in their bones or minds.