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The problem with F&F, and with the bailouts of the financial industry in general, is that the organizations and indivividuals that took risks suffered no, or few consequences. The lesson learned is that responsibility doesn't matter, the more you screw up the more the government will reward you. IMO we have set the foundation for a much bigger failure in the future.
Like many others, you don't understand the GSE's very well. Without them, there is no home mortgage market, and almost everybody is a renter. The GSE's themselves played very little role in the crisis. It was born a bred through the Wall Street investment banks who were prompted by circumstances to compete with the GSE's for suddenly very lucrative secondary mortgage market share. It was Wall Street that did the cheating and undercutting in eventually coming to dominate that market, not the GSE's.
Meanwhile, the "moral hazard" question is always of interest, but not so much when catastrophe looms. Then you do whatever is necessary to avert the catastrophe and you sort out the niceties of it all later. Did you meanwhile have any reason to fear that this "much bigger failure" is somehow coming down the pike, or is that just an expression of cognitive dissonance and free-floating dread?
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Originally Posted by Toyman at Jewel Lake
It is my understanding that the current financial reform legislation currently being debated ignores F&F. It is unfortunate that the current congressional leadership lacks the courage to address this issue.
What issue? The GSE's are currently in federal receivership. It doesn't take much these days for the feds to influence their operations. Will they ever be returned to operation as private sector entities? I don't know. But if so, I would tend to doubt that it would be anytime soon.
This is an out and out lie. S.190 (which McCain sponsored only after the bill was effectivelly dead) was never filibustered by Democrats. Never. There is not one shred of evidence anywhere to suggest that they did. The usual reply that I get when bringing some troll face-to-face with an obligation to support this claim is that, well, they were afraid of the threat of a Democratic filibuster, so that's why they never brought the bill to the floor. There is however no evidence even of any threat of a filibuster. None at all. The entire meme is an out-and-out right-wing fabrication. The bill was not brought to the floor because it was a low-ball and ineffective bill that would not have passed even under regular order. Many Republicans were opposed to it. Right-wing think tanks such as AEI were opposed to it. The National Association of Home Builders was opposed to it.
So how about it. Any of you big-time big-mouths going to put more than your usual hot air on the table here? I'll call your bluff. Where is the evidence of your claimed filibuster? Put it out there -- some good old-fashioned hard evidence to back up what you say. Got any? Anything at all???
Where is it, right-wingers? After all your pompous bluster over fact and truth, where is the first shred of evidence to support your claim that S.190 was filibustered?
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.
In other words, you can't refute any of it either, eh?
Do you have another line? Seriously, it's wasn't clever the first time and it's really trite and hackneyed by now.
For me personally, I've seen your antics on this forum, so I don't need to refute anything you post, because it's a waste of time trying to argue with incoherent hate rhetoric.
You know, it's remarkable that we have righty threads claiming he is colluding with Wall Street and that he is punishing them. Which is it? You all need to get a handle on this multiple personality thing that your side of the aisle has going on. Like a drunk in a bar fight, swinging in all directions, hoping to hit someone.
In other words, you can't refute any of it either, eh?
Little man...where's the evidence for your claim that S.190 was filibustered? That was an out-and-out lie. You haven't got squat to back it up. So unsurprising...
Reguardless of the D or R next to the name.
What business does government say it will back any loan based on color, race and if the bank makes a bad loan to begin with. If someone has no job and or credit they get NO loan, and since the government was willing to back these type of loans banks TOOK the money and ran. It all started with the government idea that it will take care of everyone when economic numbers and reality dont apply to socialized liberalism. Blame the banks for not standing their ground on STANDARDS and blame the government for socialized banking practices with tax payer money to "give everyone a home"
Banks should have failed and so should have the banking idealogies of the federal government.
PS where is the FED in all this :-)
Government expanded it's socialist idealogy and banks who had no fault immunity thanks to the government tax payer backing became rich and as they predicted could collaspe the system.
Reguardless of the D or R next to the name.
What business does government say it will back any loan based on color, race and if the bank makes a bad loan to begin with. If someone has no job and or credit they get NO loan, and since the government was willing to back these type of loans banks TOOK the money and ran. It all started with the government idea that it will take care of everyone when economic numbers and reality dont apply to socialized liberalism. Blame the banks for not standing their ground on STANDARDS and blame the government for socialized banking practices with tax payer money to "give everyone a home"
Banks should have failed and so should have the banking idealogies of the federal government.
PS where is the FED in all this :-)
Government expanded it's socialist idealogy and banks who had no fault immunity thanks to the government tax payer backing became rich and as they predicted could collaspe the system.
All the government originally said was that consistent with sound business practices, banks and S&L's that took FDIC insurance had to make serious efforts to lend into the communities that they took deposits from. You couldn't just take all these funds out of urban low-and moderate-income communities for example and use them only to build new gated golf course communities out in the upscale suburbs. You had to make efforts to provide credit services, not just deposit services, within your local neighborhood. After a short while those standards proved cumbersome and difficult for everyone to work with and they were modified into a performance-based evaluation module. There was nothing at all about color or race or job or credit history in there. It was about locality.
If you believe it was only the DEMS who tanked the economy no one here will be able to convince you otherwise.Gotta give the GOP major props because they have their supporters thinking they have never ever done one thing wrong in 100+ years in politics. Not insulting anyone, honestly, just stating they have definately done a good job of making their supporters hard core believers regardless of what the topic is.
So many people are to blame. EVERYONE was making money.
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