Quote:
Originally Posted by dv1033
Because you are trying to make it seem they weren't rejecting any loans which is not accurate.
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Here we go again.
FNMA/ FHLMC market share substantially declined as the bubble inflated because fewer loans qualified for their securitization programs. Instead, Wall Street was buying whole loans from issuers and slicing, dicing and packaging PRIVATE LABEL securities.
The independent credit rating agencies assigned AAA ratings to many of these securities which made them investment grade. ( after the shift hit the fan, these independent rating agencies blamed their faulty ratings on " computer glitches" ) As a result, in the never ending quest for higher ROI, public and private pension and retirement plans, insurance companies, mutual funds and banks bought these private label securities.
Given the substantial loss of market share as the bubble inflated, FNMA/ FNMA invested their capital in AAA rated private label MBS derivitives securities. It was the losses associated with these investments, not securitization, that caused FNMA/ FHLMC to fail.
In effect, the most conservative investors, not government, were funding the worst of the sub prime loans and did so because of the AAA credit rating assigned by independent rating agencies.
Unlike publicly- traded securities, pricing of private label securities is less than transparent. The big name investment bankers, Bear Stearns, Lehman Bros, Goldman Sachs, Morgan Stanley and Merril Lynch could churn enough trades amongst their themselves to establish market value and in doing so, goose their own balance sheets. This is the same cast of characters who persuaded the SEC to obtain relief from established Net Capital Rules allowing them to further leverage their balance sheets.
This house of cards began to collapse as it became apparent these private label securities were not delivering the expected ROI and in fact were junk bonds in AAA rated sheep's clothing. Intra-day and overnight credit makes the world go around. When credit is withheld, the game is over. Lehman filing for bankruptcy set off panic in the global financial markets. The rest is history.
It is important to understand that there was a global real estate bubble. This was in no way limited to the U.S. South Africa, New Zealand, Ireland, Iceland and so on, experienced unprecedented home and commercial real estate appreciation, no different than Japan, 15 years earlier. Real estate drove the global economy for a blip in time.
Our friends to the north, Canada are still functioning within their own bubble. They, like the U.S. have an assortment of government sponsored loan programs for low income earners. What Canada does not have is the massive speculative interests that drove the U.S. housing bubble.
Hank Paulson, summed up the U.S. situatio the best, when he said words to the effect of "too many were making too much money to question it. " This is mania.
As for the too big to fail thing, the seeds for repealing a portion of Glass Steagall were sown by Greenspan, beginning in the 80's. He diligently worked Congress until a majority agreed to let it rip. Regardless, the federal government has a strong track record of bailing out the private sector, rail roads, auto manufacturer, the Savings and Loan industry and so on when the consequences not not doing so are greater than doing so.
We seem to forget or never realized or were to young to recall the U.S. Government was up to their eyeballs in the S&L crisis in the 80's- early 90's which required a massive infusion of government funds.
Lastly, no one put a gun to the heads of people who sucked the paper equity out of their homes to live substantially beyond their means and drove the economy for a blip in time. Take note that Texas state laws severely restricted home equity loans which at the time did not make a lot of Texans happy. Yet, Texas did not experience the rate of foreclosures nor loss of value home values near as much as they did in most other areas of the country. This is an example of government regulation protecting the best interests of the people, whether they like it or not.
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