Long read but if you wanna no the truth about Fannie and freddie

[y19mike77]

Crony' Capitalism Is Root Cause Of Fannie And Freddie Troubles


In the past couple of weeks, as the financial crisis has intensified, a new talking point has emerged from the Democrats in Congress: This is all a "crisis of capitalism," in socialist financier George Soros' phrase, and a failure to regulate our markets sufficiently.

Well, those critics may be right — it is a crisis of capitalism. A crisis of politically driven crony capitalism, to be precise.

Indeed, Democrats have so effectively mastered crony capitalism as a governing strategy that they've convinced many in the media and the public that they had nothing whatsoever to do with our current financial woes.

Barack Obama has repeatedly blasted "Bush-McCain" economic policies as the cause, as if the two were joined at the hip.

Funny, because over the past 8 years, those who tried to fix Fannie Mae and Freddie Mac — the trigger for today's widespread global financial meltdown — were stymied repeatedly by congressional Democrats.

This wasn't an accident. Though some key Republicans deserve blame as well, it was a concerted Democratic effort that made reform of Fannie and Freddie impossible.

The reason for this is simple: Fannie and Freddie became massive providers both of reliable votes among grateful low-income homeowners, and of massive giving to the Democratic Party by grateful investment bankers, both at the two government-sponsored enterprises and on Wall Street.

The result: A huge taxpayer rescue that at last estimate is approaching $700 billion but may go even higher.

It all started, innocently enough, in 1994 with President Clinton's rewrite of the Carter-era Community Reinvestment Act.

Ostensibly intended to help deserving minority families afford homes — a noble idea — it instead led to a reckless surge in mortgage lending that has pushed our financial system to the brink of chaos.

Subprime's Mentors

Fannie and Freddie, the main vehicle for Clinton's multicultural housing policy, drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn't have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an "implicit" government guarantee of the debts.

This created the problem we are having today.

As we noted a week ago, subprime lending surged from around $35 billion in 1994 to nearly $1 trillion last year — for total growth of 2,757% as of last year.

No real market grows that fast for that long without being fixed.

And that's just what Fannie and Freddie were — fixed. They became a government-run, privately owned home finance monopoly.

Fannie and Freddie became huge contributors to Congress, spending millions to influence votes. As we've noted here before, the bulk of the money went to Democrats.

Dollars To Dems
Meanwhile, Fannie and Freddie also became a kind of jobs program for out-of-work Democrats.

Franklin Raines and Jim Johnson, the CEOs under whom the worst excesses took place in the late 1990s to mid-2000s, were both high-placed Democratic operatives and advisers to presidential candidate Barack Obama.

Clinton administration official Jamie Gorelick also got taken care of by the Fannie-Freddie circle. So did top Clinton aide Rahm Emanuel, among others.

On the surface, this sounds innocent. Someone has to head the highly political Fannie and Freddie, right?

But this is why crony capitalism is so dangerous. Those in power at Fannie and Freddie, as the sirens began to wail about some of their more egregious practices, began to bully those who opposed them.

That included journalists, like the Wall Street Journal's Paul Gigot, and GOP congressmen, like Wisconsin Rep. Paul Ryan, whom Fannie and Freddie actively lobbied against in his own district. Rep. Cliff Stearns, R-Fla., who tried to hold hearings on Fannie's and Freddie's questionable accounting practices in 2004, found himself stripped of responsibility for their oversight by House Speaker Dennis Hastert — a Republican.

Where, you ask, were the regulators?

Congress created a weak regulator to oversee Freddie and Fannie — the Office of Federal Housing Enterprise Oversight — which had to go hat in hand each year to Capitol Hill for its budget, unlike other major regulators.

With lax oversight, Fannie and Freddie had a green light to expand their operations at breakneck speed.

http://www.ibdeditorials.com/IBDArti...06978378974502
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[headhuntersix]

Don't let facts get in the way of blaming Bush for everything.

[y19mike77]

Funny none of the libs have much to say in this thread.

[www.BrinkZone.com]

Crony' Capitalism Is Root Cause Of Fannie And Freddie Troubles


In the past couple of weeks, as the financial crisis has intensified, a new talking point has emerged from the Democrats in Congress: This is all a "crisis of capitalism," in socialist financier George Soros' phrase, and a failure to regulate our markets sufficiently.

This entire Wall St/Bank bail out is another huge billboard to human stupidity, and it's ugly sibling, greed. A multi billion dollar (or is it trillions yet?) example of the fact that people seem incapable of taking any responsibility for their actions and bad decisions.

I’m not an economist or even well read novice on matters of finance, and I could see this one coming a mile away. Like a train wreck, you can see it a long way off, and no amount of arm waving or shouting will prevent it.

When the market was booming, I looked at interest only loans and other “products” that were being pushed hard to buyers, all of whom wanted their American Dream Mc-Mansion house.

It was clear to me even at a casual glance these loans were a bad deal. I had friends who fell hook line and sinker for these loans and would say to me “Will, the equity in the home will rise quickly, then you either flip the property if it’s an investment or re finance to a fixed mortgage.”

Great, in theory, but I would say “all bubbles pop, and you can’t be sure that equity increase will happen, and most properties are so over valued, when that bubble does pop, you will be losing equity not gaining it and will be upside down on your loan.”

None of them listened to me and I know a bunch of people who are losing large sums of $$$, or worse, defaulting on loans, and generally screwing up their lives, not to mention credit scores. People act as if the banks did them wrong or some how fooled them, etc. Bull sh*& I say.

News flash, since when has any bank or lending institution ever had your best interest in mind? Never is the answer. No matter what they are willing to loan you, it’s up to YOU to run the numbers and see if you can actually afford it, both short an long term. Because a person, or bank, is willing to hand you enough rope to hang yourself with, at the end of the day, you are responsible for you when you are swinging from that rope.

Banks and loaning institutions fed off human greed and stupidity like drunks left alone in a bar with no one to stop them from drinking, and their greed fed off the buyers, which made for the mother of all feeding frenzies. The banks ignored well know practices for deciding who was a good risk, and gave loans to people they should not have, but at the end of the day, the buyer has to see if their debt to income fits the loan. News Flash, people and banks are all to happy to sell you or loan you things you can’t afford.

When I want for an equity line, the bank said "are you sure that' s all you want?We can approve you for much more." I said no thank you, that's all I need at this time.

People are shocked to find out the banks didn’t have their best interest in mind (now called “predatory lending”) because apparently people are too stupid to actually realize interest only has to end, interest rates do go up, bubble pop, and someone actually as to pay for that house…

A few years ago, when the buying madness was in full swing, I sold a piece of property my mother left to me. I took that money and paid off my mortgage with it.

My friends told me I was crazy. They told me I could turn that money into millions by using the money to put down payments on multiple properties (using interest only loans of course) and flipping the properties before the loans came due. That’s what they were all doing…They flat out told me I was crazy for paying off my mortgage.

The only one who actually supported my doing that was my accountant. He told me it was a conservative thing to do, and yes, I could probably get a better return on other investments, but owning my own home outright was certainly not a bad financial decision.

Meanwhile, I know all sorts of people who are upside down on their loans, have condos they purchased they can’t flip, and various other hardships that are the simple results human greed and stupidity, on both the buyer side and the banks side.

Meanwhile, my “conservative” approach has me with no mortgage and a credit score a few points shy of 800. I’m not wealthy by any stretch, but I am reminded of the Tortoise and the hare story.

Here’s my personal investing philosophy and how I approach such things: I take the best-case scenario and the worst case. In the worst case, if the deal goes bad, can I absorb the loss? If the answer is no, I won’t touch it. Yes, it’s basically that simple. Conservative? Damn right.

Finally, I am reminded of an experience with a friend. He’s a professional gambler, and a good one. Unlike most, he’s always in the black in a given year, but has his good and bad months. He told me, a successful gambler has to be willing to lose large sums of money in a given night. He told me if I ever wanted to add in some of my own money (he goes to the casino with nothing less than 10k per night) he would do his best to bring back more than I gave him.

He asked one simple question. “Can you afford to lose that much money if I don’t?”

The answer was, no, no I can’t. And that’s why I don’t gamble with more money than I can afford to lose, and I don’t get into loans I am not willing to absorb if it all goes bad…

Call me a boring conservative Tortoise if you wish, but most people have only themselves to blame for the current situation but will attempt to blame the evil banks and loaning institutions.

Rant off.