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Where is the requirement to re-sell mortgages as securities?
& what about these identified factors?
We conclude this financial crisis was avoidable.
"There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms' trading activities, unregulated derivatives, and short-term "repo" lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner." The Commission especially singles out the Fed's "failure to stem the flow of toxic mortgages."
We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation's financial markets.
"More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor."
We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
"Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. ... [Large investment banks and bank holding companies] took on enormous exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic financial products." The report goes on to fault "poorly executed acquisition and integration strategies that made effective management more challenging," narrow emphasis on mathematical models of risk as opposed to actual risk, and short-sighted compensation systems at all levels.
We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
"In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt. ... [A]s of 2007, the leverage ratios [of the five major investment banks] were as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm. To make matters worse, much of their borrowing was short-term, in the overnight market—meaning the borrowing had to be renewed each and every day. ... And the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through "window dressing" of financial reports available to the investing public. ... The heavy debt taken on by some financial institutions was exacerbated by the risky assets they were acquiring with that debt. As the mortgage and real estate markets churned out riskier and riskier loans and securities, many financial institutions loaded up on them."
We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
"[K]ey policy makers ... were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small measure due to the lack of transparency in key markets. They thought risk had been diversified when, in fact, it had been concentrated. ... There was no comprehensive and strategic plan for containment, because they lacked a full understanding of the risks and interconnections in the financial markets. ... While there was some awareness of, or at least a debate about, the housing bubble, the record reflects that senior public officials did not recognize that a bursting of the bubble could threaten the entire financial system. ... In addition, the government's inconsistent handling of major financial institutions during the crisis—the decision to rescue Bear Stearns and then to place Fannie Mae and Freddie Mac into conservatorship, followed by its decision not to save Lehman Brothers and then to save AIG—increased uncertainty and panic in the market."
We conclude there was a systemic breakdown in accountability and ethics.
"In our economy, we expect businesses and individuals to pursue profits, at the same time that they produce products and services of quality and conduct themselves well. Unfortunately ... [l]enders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities. ... And the report documents that major financial institutions ineffectively sampled loans they were purchasing to package and sell to investors. They knew a significant percentage of the sampled loans did not meet their own underwriting standards or those of the originators. Nonetheless, they sold those securities to investors. The Commission's review of many prospectuses provided to investors found that this critical information was not disclosed.
We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
"Many mortgage lenders set the bar so low that lenders simply took eager borrowers' qualifications on faith, often with a willful disregard for a borrower's ability to pay. ... While many of these mortgages were kept on banks' books, the bigger money came from global investors who clamored to put their cash into newly created mortgage-related securities. It appeared to financial institutions, investors, and regulators alike that risk had been conquered. ... But each step in the mortgage securitization pipeline depended on the next step to keep demand going. From the speculators who flipped houses to the mortgage brokers who scouted the loans, to the lenders who issued the mortgages, to the financial firms that created the mortgage-backed securities, collateralized debt obligations (CDOs), CDOs squared, and synthetic CDOs: no one in this pipeline of toxic mortgages had enough skin in the game. When borrowers stopped making mortgage payments, the losses—amplified by derivatives—rushed through the pipeline. As it turned out, these losses were concentrated in a set of systemically important financial institutions."
We conclude over-the-counter derivatives contributed significantly to this crisis.
"The enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis. ... OTC derivatives contributed to the crisis in three significant ways. First, one type of derivative—credit default swaps (CDS) fueled the mortgage securitization pipeline. CDS were sold to investors to protect against the default or decline in value of mortgage-related securities backed by risky loans. ... Second, CDS were essential to the creation of synthetic CDOs. These synthetic CDOs were merely bets on the performance of real mortgage-related securities. They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system. ... Finally, when the housing bubble popped and crisis followed, derivatives were in the center of the storm. AIG, which had not been required to put aside capital reserves as a cushion for the protection it was selling, was bailed out when it could not meet its obligations. The government ultimately committed more than $180 billion because of concerns that AIG's collapse would trigger cascading losses throughout the global financial system. In addition, the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions."
We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
"The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. ... [T]he forces at work behind the breakdowns at Moody's ... includ[ed] the flawed computer models, the pressure from financial firms that paid for the ratings, the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight."
Fannie and Freddie - has driving forces as to why and how they took the positions they too, "Protracted War On Foreign Soil, and a Crumbling Infrastructure and Outsourced Industrial Capacity, it became the tool, to set up the the last vestiages of wealth in America, which was the "equity in the homes of the citizen population" which supported a stagnated and regressing economy to create an illusion that the economy was moving. this was in concert to fighting a war on borrowed money and the need to make it appear that we could afford a war, that was ill-affordable well before we got into it. It was too an aim to offset what the Terrorist said> because the Terrorist said, they would bring American to its Economic Knees". these were desperate acts to avoid or try and avoid the terrorist from claiming victory at the economic downfall of America.
People forget, "the banks could not make our foreign debt payments", and the Fed bail out was necessary to avert defaults.
Freddy and Fannie was used as a back drop to hold the massive volume of worthless loans who had their value stripped, with the sub prime game and borrowing 125% of ones equitable value. That was a level of extreme depressions that brought up to the edges of being an imporvished nation, only creating fiction by the "shuffle of paper", false rating and exaggerated value to feed the frenzy of stock trades as a pretense that our economy was functioning.
It was a short term game of "fictions and delusions" that caved in and crashed and nearly took down the world with it.
Fannie and Freddie by principle, was to call those Loans, but the banks could not pay, nor did the banks any longer know who was the high % prime holder of thse loans, because they'd been shuffled through a game of fractional components, known as derivatives. Trying to make it look like it was more than it actually was. It was the game of trying to make Penny look like it could produce and hold value of 1000%.
When all was said and done. The act should have been. To remove banks from the Home Loan Business, and Turn "ALL" Fannie and Freddie Properties over to be administered by FHA ( A Divisions of HUD), but that could not happen, because the fiction was needed to keep the banking system propped up to look as if it had assets. Fannie and Freddie Took the Fall, or the Banking system would have completely Collapsed.
When all was said and done and American begin to recover, it only did so, because of "0" % loans and Negative Interest Rate Loans< which became Tax give away to the banks to prop them up and make their recovery look as if it was better and faster than it actually was or is.
If all had been above board. Banks would have been 95% removed from the equation of Home Loan Business, and there would have been a cap set, that working American Homes up to 750K would be 100% managed via FHA and Fannie and Freddy would retain all rights to the notes on those homes. Again, the issue was, the Banks could not recall all the derivatives built upon the fractional selling of Mortgage Securities and needed the Illusions of Owning those Securities, or the derivatives market would have 100% collapsed and took down the Bond and Stock Market in a single swoop, while banks would have failed, and their failure would have left the average American Penniless.
Only Now, can Fannie and Freddie Pull Away and Classify all Home Loans of 750K and less is the sole property of Fannie and Freddie, and all loans above 750k are the property of the banks, and it would take a ONE TIME Transfer from Fannie and Freddie to Banks of those mortgages over 750k. But that would require fixed Loan Caps on what the banks could charge for those loans interest rates. It would have to be capped at a max of 7%. The remaining Loans at Fannie and Freddie would be fixed at 2.5%-3.5%, which would allow the market to stabilize and the value basis of Freddie and Fannies Mortgage Note to regain "SOLID" value, it would further require Fannie and Freddie to promote any escalation in retail value, also trigger a taxable value adjustment, which would allow home to appreciate but not to go wild and uncontrollable, without localized property tax increases. This would have strengthen cities every fraction that home retail value rose. It would force value to become a measured pace as in slow down and no more run away commercial appraisals.
The banks could then equally so have stable fixed assets, and have the imposed restoration of reserves, and they too would have their properties included in the market valuation of appraisals, to also-trigger property tax increase. this would slow down and stabilize the value of such homes.
it would force the Insurance companies to back out of the business, of underwriting the game of "run away valuations".
The problem is, the Republican congress fought every elements of a system of Managed and Regulatory governesses and converting the average American home to a national security concern that was best handled via the HUD programming of FHA. It would have brought volumes of funds into HUD, which could be used for Infrastructure and the elements that improve, save and rebuild our cities. Local Bonds for Cities would have increased in performance, and we'd have become a more solid and unshakable nations where the land would be viewed with national security valuations of protections.
We would then have a society, who had the ability to pay their mortgages, no foreclosure, and Fannie and Freddie could make any modification to assure people don't loose their homes. That is "national security valuation".
We then push and change our laws, where Foreign Entities cannot just come and arbitrarily buy up American Land and the apparatuses upon them.
We never got to it, because Republican Infighting pushed distraction and diversion at every point and turn and would take no part to help American people understand. We could have set up systems where HUD/FHA homes loans could have been converted to 15yr, Fixed Rate Loans, and after 15 yrs, people would have had more to save toward their retirement and more to invest and create business, and add in stipulations, that a person could never leverage more than 49% of their equity, wherefore, the homeowner would not loose majority ownership of their property.
But, we are not at a point of such intellect and understanding as a society, there are wealthy holders who would fight by any means, to maintain their profit gouging system upon and against the people.
I wrote this out in far more detail back during the crisis, this is just a rough sketch rough overview.
Public assistance programs (Food Stamps, Medicaid, Section 8, etc.) would be better funded by voluntary donations. Why? Because as a tax deduction, instead of the 100% cost to the government, it would only at the most cost the highest effective tax rate amount which is the effective federal income tax rate paid by the top 0.1% at 27.67%.
Public assistance programs (Food Stamps, Medicaid, Section 8, etc.) would be better funded by voluntary donations. Why? Because as a tax deduction, instead of the 100% cost to the government, it would only at the most cost the highest effective tax rate amount which is the effective federal income tax rate paid by the top 0.1% at 27.67%.
Wholeheartedly agree, but do you expect the liberals will put their own money where their mouths are?
The bigger question is, "Why does capitalism exist?"
If you know the real reason capitalism exists, then everything else will begin to make sense.
And regardless of what you might think, capitalism doesn't exist only so that some rich guys can con or exploit poor people. That is what happens, but that isn't the purpose.
The bigger question is, "Why does capitalism exist?"
If you know the real reason capitalism exists, then everything else will begin to make sense.
And regardless of what you might think, capitalism doesn't exist only so that some rich guys can con or exploit poor people. That is what happens, but that isn't the purpose.
What is the purpose?
It's voluntary exchange of businesses.
The rich can't exploit the poor when everything is voluntary. To claim "being exploited" is like engaging in consensual marriage, but come out suing the other party for rape.
We wasted a ton of money on the Commission on National Fiscal Policy and Reform. They came up with good (if not obvious) things we should do and we simply ignored it.
I had referenced the Financial Crisis Inquiry Commission's report.
Quote:
Basically, there are two explanations that are given for the 2008 crash: the Democratic one, which says that Wall Street was deregulated and ran wild with frauds that cheated both the people who signed to trick mortgages and the people who bought the fraudulent mortgage-backed securities; versus the Republican one, which says that there was too much regulation in order to get poor people to buy houses they couldn’t afford, and so Fannie Mae and Freddie Mac ran wild with insuring or even buying mortgages to the poor, who basically ripped off the system and so caused the crash.
The above is a very simplistic explanation however it aptly & succinctly explains the inertia re: taking the simplest & common sense-based corrective measures. The same amount of systemic risk still exists, very little has changed.
EU has its own problems however has taken a more common-sense view when it comes to proactive corrective remedies.
The rich can't exploit the poor when everything is voluntary. To claim "being exploited" is like engaging in consensual marriage, but come out suing the other party for rape.
I'm not a communist. But it is quite obvious that people with capital, have an advantage over those who don't. When your only choice is between exploitation or starvation, is it really a choice?
But that wasn't even the point of my question. I asked why it existed. I didn't ask what it was.
"A man who is without capital, and who, by prohibitions upon banking, is practically forbidden to hire any, is in a condition elevated but one degree above that of a chattel slave. He may live; but he can live only as the servant of others; compelled to perform such labor, and to perform it at such prices, as they may see fit to dictate." - Lysander Spooner
Why does capitalism exist? What is its purpose?
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