Aces High Bulletin Board
General Forums => The O' Club => Topic started by: bustr on September 24, 2008, 03:08:37 AM
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From the Wall Street journel. A very good explanation of this whole mess. Liberals on this board please take an antacid before reading.
http://online.wsj.com/article/SB122212948811465427.html
Blame Fannie Mae and Congress
Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.
How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.
It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that -- despite their subsidized borrowing rates -- they did not significantly reduce mortgage interest rates. In the wake of Freddie's 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.
If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.
The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.
In light of the collapse of Fannie and Freddie, both John McCain and Barack Obama now criticize the risk-tolerant regulatory regime that produced the current crisis. But Sen. McCain's criticisms are at least credible, since he has been pointing to systemic risks in the mortgage market and trying to do something about them for years. In contrast, Sen. Obama's conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. The first head of Mr. Obama's vice-presidential search committee, Jim Johnson, a former chairman of Fannie Mae, was the one who announced Fannie's original affordable-housing program in 1991 -- just as Congress was taking up the first GSE regulatory legislation.
In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.
Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.
As a result, U.S. commercial banks have been able to attract more than $100 billion of new capital in the past year to replace most of their subprime-related write-downs. Deregulation of branching restrictions and limitations on bank product offerings also made possible bank acquisition of Bear Stearns and Merrill Lynch, saving billions in likely resolution costs for taxpayers.
If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.
Mr. Calomiris is a professor of finance and economics at Columbia Business School and a scholar at the American Enterprise Institute. Mr. Wallison, a senior fellow at the American Enterprise Institute, was general counsel of the Treasury Department in the Reagan administration.
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Very nice, I've been looking for a "Clef notes" version of this
In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.
Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.
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http://online.wsj.com/article/SB122220798359168765.html
interesting articles
Don't ya know - this guy will probably one of the few who actually wuill profit from this mess
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If you mean the author yes, his analysis is in demand on a paying basis.
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Wow....incredible
Wonder how much of this will be seen in the MSM.
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Right now the people of our great nation think it's the republicans fault 2 to 1. Nary a word from our esteemed and forthright, cough cough, liberal media.
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Do you idiots honestly think liberals caused this crisis? And this one article proves it?
LOL
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No Curval, Liberals with Janet Reno's force of Law forced banks with Barny Frank running interference for fanni to buy bad loans and fudge its books.
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Republican - Blame everyone but yourself syndrome... :aok
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Democrat: Cut and run syndrome... :aok
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Republican - Blame everyone but yourself syndrome... :aok
Democrat: Cut and run syndrome... :aok
http://online.wsj.com/article/SB122212948811465427.html
"Blame Fannie Mae and Congress"
Last time I checked. Congress was made up primarily of BOTH Republicans AND Democrats
I dont recall many of either party yelling "fire".
They share the blame equally.
The name and credentials of the author shouldnt be lost on anyone either.
As I've said before
"in the end they do it all together then when something goes wrong they point fingers at each other."
Now we have two members of Congress standing before us looking for a promotion.
And the killer is.
You people are going to give one of them it
The victim thanking the rapist.
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some people have been saying for two years that fanny and freddy were in trouble and needed to be fixed, but barney frank and chuck schumer kept saying no , everything is fine.
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If you mean the author yes, his analysis is in demand on a paying basis.
No I meant this guy
Read the article
http://online.wsj.com/article/SB122220798359168765.html
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My solution is simple and painful, Cut em off. It's just a piggy bank that the democrats rob anyway. Let those organizations die!
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My solution is simple and painful, Cut em off. It's just a piggy bank that the democrats rob anyway. Let those organizations die!
If that happens -- hope you enjoy the soup lines... cuz that is a reality
http://www.cbo.gov/ftpdocs/97xx/doc9767/MktTurmoil.htm
CBO
TESTIMONY
Statement of
Peter R. Orszag
Director
Federal Responses to Market Turmoil
before the
Committee on the Budget
U.S. House of Representatives
September 24, 2008
watched this last night for 2 hours on C-Span
This guy was easy to uinderstand and the political posturing by both dem and repub members of the commitee he largely ignored, and laid it on straight.. when they asked questions as to who is at fault - he said everyone.. the most disturbing thing was the comments about overnight papers...which is what our economy is basically run on.. is practically nil right now..and will be a total blow up if something isn't done soon...
when asked if congress did nothing... he pretty much said --we is ****ed... we owe over 11 trillion dollars to the world markets.. if the world markets cannot "trust" the federal government to help shore up this mess in a non political bipartisan effort... those loans--will be called...
not might be called... will be called... if companies cannot take out short term loans... layoffs will occur.. if layoffs occur there is less spending money in the economy.. which means more layoffs will occur.. a downward spiral .. his take.. would be worse than the market crash of the depression era..
i loved when he rolled his eyes when a democrat from California was going on and on about the bush term in the last 8 years has doubled the national debt.. his response was a tongue in cheek.. yeah you can't borrow millions of dollars a day to finance a war and not expect to have to pay it back eventually...but guess what.. we do... and to beech about it now does nothing more than put off the inevitable that political bs got us here and political bs will make it worse..
My take on what he pretty much said -- we have to do this... it can be an at worse "break even" measure if we finance the "well run' financial institutions... weed out the "not very well run" financial institutions ..by helping the "well run" institutions absorb them... but keep politics and "friendships" out of it..
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at 11:30 mountain time, i read the headline on CBS' website that the house as agreed to the bailout in principle. Whatever that means. I'm going to use my vote to vote against every incumbent in both houses of congress that's on my ballot.
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What was truly funny was the author trying to explain deregulation is a "good" thing. I'm still paying for the Republican deregulation of energy which caused the Enron scandal.
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Wow, the stereotypes are flying!
Let's see, Barney Frank and his party wouldn't allow for any oversight of the subprime mortgages, which convinced thousands who couldnt afford a home...they could. This is the same party which a member declared a bank was due to go bust, and cost the taxpayers over a billion dollars after a run on the bank occurred.
So when the much slammed Republicans try to fix an obvious problem, the Dems cut and run and try faulting them for it all.
It would be almost funny if the cleverness wasn't so transparent.
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Barney Frank should go to jail. Two years ago Frank said fanny and freddy were not in trouble, well fanny is pregnant and freddy has skipped town with your money.
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It's interesting to see what Fannie and Freddie have poured some money into:
http://pfds.opensecrets.org/092408.html (http://pfds.opensecrets.org/092408.html)
Top Recipients of Fannie Mae and Freddie Mac
Campaign Contributions, 1989-2008
Name Office Party/State Total
1. Dodd, Christopher J S D-CT $133,900
2. Kerry, John S D-MA $111,000
3. Obama, Barack S D-IL $105,849
4. Clinton, Hillary S D-NY $75,550
5. Kanjorski, Paul E H D-PA $65,500
6. Bennett, Robert F S R-UT $61,499
7. Johnson, Tim S D-SD $61,000
8. Conrad, Kent S D-ND $58,991
9. Davis, Tom H R-VA $55,499
10. Bond, Christopher S 'Kit' S R-MO $55,400
11. Bachus, Spencer H R-AL $55,300
12. Shelby, Richard C S R-AL $55,000
13. Emanuel, Rahm H D-IL $51,750
14. Reed, Jack S D-RI $50,750
15. Carper, Tom S D-DE $44,389
16. Frank, Barney H D-MA $40,100
17. Maloney, Carolyn B H D-NY $38,750
18. Bean, Melissa H D-IL $37,249
19. Blunt, Roy H R-MO $36,500
20. Pryce, Deborah H R-OH $34,750
21. Miller, Gary H R-CA $33,000
22. Pelosi, Nancy H D-CA $32,750
23. Reynolds, Tom H R-NY $32,700
24. Hoyer, Steny H H D-MD $30,500
25. Hooley, Darlene H D-OR $28,750
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Hey, Nwbie...
See that big key over on the right? The one that says "ENTER"? If you'll use it after typing a few sentences, type a few more, use it again, rinse/repeat....
You can avoid posting a WALL OF TEXT that most people tend to skip over.
But hey.... if you don't want people to read what you post, just keep doing it like you do it now.
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Hey, Nwbie...
See that big key over on the right? The one that says "ENTER"? If you'll use it after typing a few sentences, type a few more, use it again, rinse/repeat....
You can avoid posting a WALL OF TEXT that most people tend to skip over.
But hey.... if you don't want people to read what you post, just keep doing it like you do it now.
Hey Toad
Don't read it..
Remain as you are
Here is an interesting article if anyone wants to see the reality of the situation, and someone who actually has something to add.
Toad don't bother, it is long and doesn't have crayon drawings in it
http://www.bloomberg.com/apps/news?pid=20601109&sid=ap7qgkf2KaKE