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President Zero seems to have his blinders on especially tightly nowadays. All the better to avoid noticing the real cause of the crash he keeps trying to blame on Wall St.
Remember the actual sequence of events that destabilized the various lending institutions?
Here's a summary:
The Federal National Mortgage Association (FNMA, or "Fannie Mae") was created in 1938 during the Great Depression, to create a market for mortgages where they could be bought and sold.
In 1968, Lyndon Johnson and a Democratic Congress spun off Fannie Mae so that it would not show up in the Federal budget. But the Federal govt was always there, ready to bail out Fannie Mae if problems happened. This enables Fannie Mae to offer lower rates for the mortgages it bought, since it was not taking the risks that other banks and institutions had to. In 1970, the Federal Home Loan Mortgage Corporation ("Freddie Mac") was formed, to create competition for Fannie Mae, since ordinary banks could NOT compete with the government-backed rates they offered.
The Community Reinvestment Act (CRA) was passed by a Democrat Congress and signed by Jimmy Carter in 1977. It made sure banks were lending to people of all colors and income levels. But things quickly began going off the rails, as activist groups found a new weapon in the law: The could start suing lenders for discrimination if they didn't lend to enough minority families, regardless of the families' ability to pay the loans back as promised. Banks began making riskier and riskier loans for fear of having to fight expensive lawsuits.
Community groups began bullying the banks, especially one called the Association of Community Organizers for Reform Now ("ACORN"). It hired several specialized lawyers, including a young man named Barack Obama, to teach its employees how to go to the homes of bank CEOs and senior officers, harassing and publicly embarrassing them while remaining within the limits of local law to avoid prosecution. At one point, ACORN brought a lawsuit against a thrift merger in Illinois, insisting that the lending institutions had not made as many loans to minorities as ACORN thought they should. The bank replied that such loans would be financially irresponsible, and would put ALL the bank's customers at unacceptable risk. ACORN prevailed in court, and banks began making more and more risky loans to home buyers who could have never qualified for those loans under ordinary circumstances.
In late 2000, in the last days of the Clinton administration, the government ordered Fannie and Freddie to increase the numbers of these risky ("sub-prime") mortgages they were buying from banks and lending institutions across the country. They did, lowering their rates and buying more and more, until fully half their portfolios consisted of these risky sub-prime mortgages, combined and packaged in various ways.
The Bush administration raised red flags starting in April 2001. Their 2002 Budget Request declared that the size of mortgage giants Freddie Mac and Fannie Mae is "a potential problem" because financial trouble in either one of them "could cause strong repercussions in financial markets".
In 2003, the White House warning about Fannie and Freddie, was upgraded to a "Systemic Risk that could spread beyond just the housing sector".
As Fannie and Freddie continued to lower their rates and buy mortgages, lenders made more and more mortgages to buyers with questionable ability to pay, safe in the knowledge that they could immediately turn around and sell the mortgages to the government-sponsored Fannie and Freddie, thus avoiding any consequences if the loans were later defaulted. They were happy to make more and more such mortgages, collecting fees for each and selling the mortgages to F&F.
Countrywide Financial chairman Angelo Mazzillo literally started screaming at Wall Street Journal editor Paul Gigot, when Gigot asked him about the wisdom of making so many loans to buyers unlikely to pay them back. Mazzillo insisted loudly that Gigot had no idea what he was talking about, did not understand the first thing about mortgage lending, etc., etc. He failed, however, to answer any of Gigot's questions in even the simplest terms or explain why they were "wrong".
In Fall 2003, the Bush Admin was pushing Congress hard to create a new Federal agency to regulate and supervise Fannie and Freddie, both Government Sponsored Entities, or GSEs.
At a Congressional hearing on Sept 10, 2003, John Snow, Secretary of the Treasury stated: "We need a strong, world-class regulatory agency to oversee the prudential operations of the GSE's, and the safety and soundness of their financial activities."
At that same hearing, ranking member of the House Financial Services Committee Barney Frank (D-MA) defended his practices with regard to Fannie Mae and Freddie Mac: "Fannie Mae and Freddie Mac, are not in a crisis."
Frank said the Fed Govt should be <i>encouraging</i> F&F to do more to get low-income families into homes:
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up a possibility of serious financial losses to the treasury - which I do not see, I think we see entities which are fundamentally sound financially and can withstand some of the disaster scenarios - the more pressure there is there, then the less I think we see in terms of 'affordable housing' ".
The top executives at F&F began cooking their books, exaggerating their sales in their quarterly reports, so that the company officials could claim they had met their companies' sales targets, and thus collect huge salary bonuses. They were finally caught in 2004. Several of them stepped down, but none was every punished, or even charged. One of them, Franklin Raines, CEO of Fannie Mae, later gave financial and housing advice to the campaign of Presidential contender Barack Obama.
At a House Financial Services Committee Hearing on Feb. 17, 2005, Alan Greenspan warned against one of the fundamental ideas of modern liberalism, the idea of putting all our eggs in one basket by concentrating financial activity into just a few big agencies in central government: "... Enabling these institutions to increase in size - and they will once the crisis in their judgment passes - we are placing the total financial system of the future at a substantial risk."
He later added at another hearing on on April 6, 2005: "If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis."
Senator Charles Schumer (D-NY) ignored any possibility the F&F might be in trouble at that hearing, and simply pointed to the advantages some people had gotten from the government's activities: "I think Fannie and Freddie ... are an intrinsic part of making America the best-housed people in the world... if you look over the last 20 or whatever years, they have done a very, very good job."
Schumer also complained, "Things are good in the housing market. Why are people entertaining radical change?"
On April 7, 2005, Treasury Secretary John Snow warned again: "These large portfolios, unchecked in their growth over the last decade or so, pose a real problem." The Senate Banking Committee adopted strong regulation that would have prevented Fannie and Freddie from acquiring these bad mortgages. All of the Republicans on the committee voted for it, and all the Democrats voted against it, and it passed out of the committee on a straight party-line vote. But Democrats then filibustered the bill on the Senate floor, preventing it from being brought to a vote.
Freddie Mac and Fannie Mae was active in making campaign contributions to politicians, from money that ostensibly was for low-income mortgages. The top two recipients were:
Christopher Dodd (D-CT): $165,000
Barack Obama (D-IL): $126,000
The highest-receiving Republican was Bob Bennett (R-UT), who got $108,000. Further down the list was John McCain (R-AZ), who accepted $25,000.
On May 25, 2006 in the Senate, John McCain (R-AZ) sounded more warnings over the huge size and lack of discipline in the government companies, and sponsored a bill to regulate the companies more firmly: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac... and the sheer magnitude of these companies and the role they play in the housing market... the GSEs need to be reformed without delay." McCain's bill was voted out of committee on a straight party-line vote: All Republicans voted for it, and all Democrats voted against. Democrats then announced they would filibuster the bill in the Senate, as they had the previous year's regulatory legislation. Republicans knew they did not have enough votes to achieve the 60% needed, and so never brought the bill to the Senate floor.
By the beginning of 2008, Fannie Mae and Freddie Mac had bought up over $4 trillion in mortgages, roughly one-quarter of which was risky sub-prime mortgage paper. With interest rates rising, these rickety homeowners started defaulting on their loans. Only about 2% of them defaulted by January 2008, but the effect was disastrous. Banks began to get leery of lending money to each other, knowing that their fellow banks held substantial assets that might default and become worthless, thus making the banks unable to pay back their loans to each other.
Banks and lending institutions began collapsing or seeking emergency help: Countrywide Financial, Lehman Brothers, insurer AIG, Bear Stearns, IndyMac bank, etc. buckled to their knees as paralysis spread. The huge numbers of risky subprime mortgages, had become like a "poison pill" that choked the institutions that had swallowed them. The Fed finally took over Freddie Mac and Fannie Mae, but the damage had long been done.
Congress appropriated nearly $1 trillion in emergency funds to loan to, or otherwise prop up, failing financial institutions. But none of the original legislation that had spurred decades of risky lending, has been repealed in all the "bailout" frenzy, and there are no bills pending to do so.
That's right. The government created the crisis. Now Obama is repeating the untruth that the banks caused it, and on top of that, he is repeating the untruth that people were outraged at the banks. Maybe in his community they were, but in my community it was seen as a good thing that the tax payer was able to rescue the banks and the banking system. It's the first time we tax payers saw the government doing something good with our dollars. Now Obama is saying he would save us from doing it again if we had to - he's doing us a favor? But we don't want banks to fail. We don't want to give the government more power to close banks.
Wall Street salivated over the mortgage market they could not play in. When they finally had those trillions under their control they set up the casino and gambled away the money. That is what Wall Street does. Why is anyone surprised?
We should have left the collapsing market collapse. Some of us would have lost some money but the big boys would have lost billions. It takes losing billions to teach these gamblers to be careful or to have them replaced with sensible traders. The government should have bailed out the small scale investors by covering the first 200 k losses per individual. That would have protected most of the people’s pension savings. It would also have left the billionaire gamblers drying in the wind.
OP - Obama is "punishing" Wall Street because it deserves it for speculating away our savings.
The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate. For example, Citicorp (a commercial bank holding company) merged with Travelers Group (an insurance company) in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. This combination, announced in 1998, would have violated the Glass-Steagall Act and the Bank Holding Company Act of 1956 by combining securities, insurance, and banking, if not for a temporary waiver process.[1] The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the "financial services industry".
Only dems are responsible for the meltdown? I don't think so.
Revisionist history...definitely.
We're quite happy with the way things turned out. It could have been alot worse. You and your socialist ideas - you create the problems and we fix them. No more socialist ideas please.
We're quite happy with the way things turned out. It could have been alot worse. You and your socialist ideas - you create the problems and we fix them. No more socialist ideas please.
The collapse of a global housing bubble, which peaked in the U.S. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging financial institutions globally.[7] Questions regarding bank solvency, declines in credit availability, and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this period as credit tightened and international trade declined.[8] Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century financial markets
Right. Because a mandate to make mortgages more affordable and available to disadvantaged groups FORCED investment banks to invest in and roll subprime mortgages into CDOs and to push mortgage products on late night TV with teaser rates because they knew they would sell the mortgage in the secondary market before the poor guy couldn't pay his mortgage when the rate adjusted in three years.
The quick profit motive didn't have ANYTHING to do with it at all. Congress MADE them do it!
It does seem absurd. You have Obama who is in bed with Goldman Sachs, chastising the other wall street firms for playing fast and loose with investors money. And yet the government is by far the worst culprit in mismanaging money and abusing the trust of its citizens. Its not like letting the fox guard the chicken house, its like letting the wolf look after your children. Where is Teddy Roosevelt when we need him? He'd clear out Obama and these manipulators in a hurry.
Because it is very easy to target the wealthy and anything "establishment". Most people want what other people have and are jealous of wealth, therefore are very eager to demonize whenever they get the chance..just human nature..and most who do this are liberals so they won't blame their illustrious leaders..
Because it is very easy to target the wealthy and anything "establishment". Most people want what other people have and are jealous of wealth, therefore are very eager to demonize whenever they get the chance..just human nature..and most who do this are liberals so they won't blame their illustrious leaders..
Not much different than those that idolize the wealthy, as they aspire to get there themselves. But, much like young athletes aspire to become pros, very few actually make it. About 5% of Americans get wealthy, but they won't blame their illustrious leaders either.
Only dems are responsible for the meltdown? I don't think so. Revisionist history...definitely.
Right, repeal of Glass-Steagall had been a long-term Republican agenda item, and they had failed at it many times over before they finally succeeded when Clinton relented and worked out a deal to get it through. Now in fairness, there were provisions of Glass-Steagall that actually were hampering for no real reason US banks and financial corporations who were trying to compete in newly emerging international markets, and those at least could reasonably have been modified or done away with. But even with the sweeteners that Clinton was able to pry out of the Republicans (such as strengthening CRA), the actual Gramm-Leach-Bliley bill was a fox-in-the-henhouse idea, as was almost immediately demonstrated with the emergence of the rigged IPO scandals that simply bilked the public and put billions into the pockets of the banks' favored customers. But given the ultimate results of the 2000 election there was never going to be a way to go back and undo the damage done.
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