tonesforjonesbones
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Barny Frank and Chris Dodd need to be recalled!!! NOW!
The GBigs Angle
Thursday, September 25, 2008
Economic Crisis of 2008
How did we get here? The economic crisis of 2008 is rooted in history from post World War II thru today. The crisis is connected to the founding, function, and fate of the US Government Sponsored Enterprises (GSE) - Fannie Mae and Freddie Mac.
Founding Fathers
As part of the massive social programs of the Franklin Roosevelt New Deal in 1938, congress created Fannie Mae to restore the mortgage credit markets destroyed during the Great Depression.
Later, during the Viet Nam war era in 1970, during the Lyndon Johnson Great Society legislation, Freddie Mac was created to compete with Fannie Mae as both were pushed off federal books and into the public sector.
How Fannie and Freddie Work
The function and mandate for both GSEs is to maintain a market for mortgages - buying loans from banks (IndyMac) and mortgage companies (Countrywide Financial), repackaging them as Mortgage-Backed Securities (bonds), and selling those securities to investors (Lehman Bros, and AIG).
Both GSEs are given special treatment and are able to borrow money directly from the Federal Reserve as AAA rated creditors. The mortgages they hold on their books alone total about $2.4 trillion, as of 2008. This amounts to 20% of the US national debt before 2008.
The types of loans the GSEs would underwrite became more risky during the Carter Administration when the Community Reinvestment Act (CRA) of 1977 was written and enacted. The CRA required banks and thrifts to end a practice known as "redlining." Redlining is the practice of targeting loans to higher income neighborhoods. The purpose of the CRA is to provide credit, including home ownership opportunities to undeserving populations and commercial loans to small businesses in the inner-cities and poor rural areas.
The GSEs became the center of the "Low Income-Inner City" mortgage industry during the Clinton administration. The CRA was modified in 1997 to relax regulation for inner-city loans. The Clinton HUD department forced the GSEs to lower lending standards and created quotas for making loans to low-income clients. Finally, the GSEs were forced to commit a minimum of 10% of their portfolios to "Alt-A" or Subprime loans. These loans were known as NINJA loans - No Income, No Job, and No Ability to pay.
The result of the GSEs loan guarantees, and loan purchasing in the high risk Subprime market created a false sense of security among private lenders. Private lenders could more easily find and write NINJA loans, and increase their brokerage fee revenues. Likewise, the GSEs bought thousands of such loans and packaged them for sale in the securities markets. Buyers of these securities also felt a false sense of security because the seller was Fannie Mae and Freddie Mac, two companies they viewed as being the same as the US Government.
The GSEs currently carry about $830 billion or about 15 percent of their total portfolio in Subprime mortgages.
Corruption At The Helm
Specifically, three Democrats with close ties to Barack Obama served as Fannie Mae executives: Franklin Raines, former Clinton administration budget director; James Johnson, former aide to Democratic Vice President Walter Mondale; and Jamie Gorelick, former Clinton administration deputy attorney general. They are stark examples of Democrats using the GSEs to further their personal ambitions.
Fannie Mae overstated its earnings by $10.6 billion from 1998 through 2004, and its chief executive, Franklin Raines was fired by Congress. Freddie Mac understated its profit by nearly $5 billion from 2000 through 2002. The incentive to do this was to garner larger performance bonuses.
James Johnson earned $21 million in just his last year serving as Fannie Mae CEO from 1991 to 1998; Franklin Raines earned $90 million in his five years as Fannie Mae CEO, from 1999 to 2004; and Jamie Gorelick earned an estimated $26 million serving as vice chair of Fannie Mae from 1998 to 2003.
Who Wants To Regulate?
"For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac – known as government-sponsored entities or GSEs – and the sheer magnitude of these companies and the role they play in the housing market," John McCain said on the floor of the Senate in 2005, speaking as a co-sponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005.
The bill to tighten the Fannie Mae and Freddie Mac regulatory structure passed the House but was never brought up for a vote in the Senate, largely because of Democratic opposition (led by Chris Dodd and Barney Frank).
Chris Dodd is the Chairman of the Senate Banking Committee and has received money from Fannie Mae and favorable treatment in personal loans from Countrywide Financial. Dodd received $165,400 in Fannie Mae and Freddie Mac campaign contributions, including contributions from PACs and individuals. Additionally Barack Obama has received $126,349 in such contributions since being elected to the Senate in 2004.
Chris Dodd, in his role as chairman of the Senate Banking Committee, proposed a housing bailout to the Senate floor in June 2008 that would assist troubled subprime mortgage lenders such as Countrywide Bank. In 2003, Dodd refinanced the mortgages on his homes in Washington D.C. and Connecticut through Countrywide Financial and received favorable terms due to being placed in a "Friends of Angelo" program.
As Chairman of the House Financial Services Committee, Barney Frank "sits at the center of power in the mortgage industry". In 2003, Frank opposed the Bush administration and Congressional Republican efforts in the most significant regulatory overhaul of the housing finance industry since the Carter Era.
Democrats in Congress have sought to preserve the quasi-governmental status of the mortgage giants, viewing Fannie Mae and Freddie Mac as places to locate former top Democratic Party operatives and to further their agenda to use the government to provide low-income money to their constituents.
President George Bush has persistently asked the Democratically controlled congress SEVENTEEN times for more regulation of Fannie Mae in 2007, and 2008 to no avail.
Meltdown In 2008
"What's important are facts - and the facts are that Fannie and Freddie are in sound situation," note Chris Dodd. "They have more than adequate capital. They're in good shape." July, 2008.
"These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis," Chairman Frank said. He added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." July, 2008
On Sept 7, 2008 Congress declared both Fannie Mae and Freddie Mac bankrupt. The government injected taxpayer dollars into the GSEs — up to $100 billion total for each company.
Seven Hundred Billion Dollars
In order to avoid total economic collapse in the credit markets due to the influence and activities of the GSEs, the government is now mulling the passage of a $700,000,000,000 bailout that involves buying Mortgage-Backed Securities generated over the past ten years
The GBigs Angle
Thursday, September 25, 2008
Economic Crisis of 2008
How did we get here? The economic crisis of 2008 is rooted in history from post World War II thru today. The crisis is connected to the founding, function, and fate of the US Government Sponsored Enterprises (GSE) - Fannie Mae and Freddie Mac.
Founding Fathers
As part of the massive social programs of the Franklin Roosevelt New Deal in 1938, congress created Fannie Mae to restore the mortgage credit markets destroyed during the Great Depression.
Later, during the Viet Nam war era in 1970, during the Lyndon Johnson Great Society legislation, Freddie Mac was created to compete with Fannie Mae as both were pushed off federal books and into the public sector.
How Fannie and Freddie Work
The function and mandate for both GSEs is to maintain a market for mortgages - buying loans from banks (IndyMac) and mortgage companies (Countrywide Financial), repackaging them as Mortgage-Backed Securities (bonds), and selling those securities to investors (Lehman Bros, and AIG).
Both GSEs are given special treatment and are able to borrow money directly from the Federal Reserve as AAA rated creditors. The mortgages they hold on their books alone total about $2.4 trillion, as of 2008. This amounts to 20% of the US national debt before 2008.
The types of loans the GSEs would underwrite became more risky during the Carter Administration when the Community Reinvestment Act (CRA) of 1977 was written and enacted. The CRA required banks and thrifts to end a practice known as "redlining." Redlining is the practice of targeting loans to higher income neighborhoods. The purpose of the CRA is to provide credit, including home ownership opportunities to undeserving populations and commercial loans to small businesses in the inner-cities and poor rural areas.
The GSEs became the center of the "Low Income-Inner City" mortgage industry during the Clinton administration. The CRA was modified in 1997 to relax regulation for inner-city loans. The Clinton HUD department forced the GSEs to lower lending standards and created quotas for making loans to low-income clients. Finally, the GSEs were forced to commit a minimum of 10% of their portfolios to "Alt-A" or Subprime loans. These loans were known as NINJA loans - No Income, No Job, and No Ability to pay.
The result of the GSEs loan guarantees, and loan purchasing in the high risk Subprime market created a false sense of security among private lenders. Private lenders could more easily find and write NINJA loans, and increase their brokerage fee revenues. Likewise, the GSEs bought thousands of such loans and packaged them for sale in the securities markets. Buyers of these securities also felt a false sense of security because the seller was Fannie Mae and Freddie Mac, two companies they viewed as being the same as the US Government.
The GSEs currently carry about $830 billion or about 15 percent of their total portfolio in Subprime mortgages.
Corruption At The Helm
Specifically, three Democrats with close ties to Barack Obama served as Fannie Mae executives: Franklin Raines, former Clinton administration budget director; James Johnson, former aide to Democratic Vice President Walter Mondale; and Jamie Gorelick, former Clinton administration deputy attorney general. They are stark examples of Democrats using the GSEs to further their personal ambitions.
Fannie Mae overstated its earnings by $10.6 billion from 1998 through 2004, and its chief executive, Franklin Raines was fired by Congress. Freddie Mac understated its profit by nearly $5 billion from 2000 through 2002. The incentive to do this was to garner larger performance bonuses.
James Johnson earned $21 million in just his last year serving as Fannie Mae CEO from 1991 to 1998; Franklin Raines earned $90 million in his five years as Fannie Mae CEO, from 1999 to 2004; and Jamie Gorelick earned an estimated $26 million serving as vice chair of Fannie Mae from 1998 to 2003.
Who Wants To Regulate?
"For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac – known as government-sponsored entities or GSEs – and the sheer magnitude of these companies and the role they play in the housing market," John McCain said on the floor of the Senate in 2005, speaking as a co-sponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005.
The bill to tighten the Fannie Mae and Freddie Mac regulatory structure passed the House but was never brought up for a vote in the Senate, largely because of Democratic opposition (led by Chris Dodd and Barney Frank).
Chris Dodd is the Chairman of the Senate Banking Committee and has received money from Fannie Mae and favorable treatment in personal loans from Countrywide Financial. Dodd received $165,400 in Fannie Mae and Freddie Mac campaign contributions, including contributions from PACs and individuals. Additionally Barack Obama has received $126,349 in such contributions since being elected to the Senate in 2004.
Chris Dodd, in his role as chairman of the Senate Banking Committee, proposed a housing bailout to the Senate floor in June 2008 that would assist troubled subprime mortgage lenders such as Countrywide Bank. In 2003, Dodd refinanced the mortgages on his homes in Washington D.C. and Connecticut through Countrywide Financial and received favorable terms due to being placed in a "Friends of Angelo" program.
As Chairman of the House Financial Services Committee, Barney Frank "sits at the center of power in the mortgage industry". In 2003, Frank opposed the Bush administration and Congressional Republican efforts in the most significant regulatory overhaul of the housing finance industry since the Carter Era.
Democrats in Congress have sought to preserve the quasi-governmental status of the mortgage giants, viewing Fannie Mae and Freddie Mac as places to locate former top Democratic Party operatives and to further their agenda to use the government to provide low-income money to their constituents.
President George Bush has persistently asked the Democratically controlled congress SEVENTEEN times for more regulation of Fannie Mae in 2007, and 2008 to no avail.
Meltdown In 2008
"What's important are facts - and the facts are that Fannie and Freddie are in sound situation," note Chris Dodd. "They have more than adequate capital. They're in good shape." July, 2008.
"These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis," Chairman Frank said. He added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." July, 2008
On Sept 7, 2008 Congress declared both Fannie Mae and Freddie Mac bankrupt. The government injected taxpayer dollars into the GSEs — up to $100 billion total for each company.
Seven Hundred Billion Dollars
In order to avoid total economic collapse in the credit markets due to the influence and activities of the GSEs, the government is now mulling the passage of a $700,000,000,000 bailout that involves buying Mortgage-Backed Securities generated over the past ten years
