Monday, September 29, 2008

C-Span clips on Freddie/Fannie hearings from 2002-2004

An 8.5 minute video of C-Span clips of various Democrats defending Fannie/Freddie back in the early 2000's when Bush, McCain and company were trying to regulate this GSE. Found at Colossus of Rhodey.

Saturday, September 27, 2008

Wednesday, September 24, 2008

Fannie's Orphans

From the September 24, 2008 Seattle Times:

Says the repo middle man: Forget the bailout. Banks, homeowners: They mostly don't deserve it.

"You know what homes are in foreclosure? The ones where people sucked all the equity out," Shank says. "They went to Vegas. They bought Suburbans. They didn't think past whatever day it was."

Sen. Chris Dodd (D-Conn) Chair of the Senate Banking Committee, Hypocrite Extraordinaire

From Betsy's Page quoting Victor Davis Hanson:

Why are these guys in charge of deciding on the bailout

There is some cognitive dissonance in seeing Chris Dodd chair the hearing on the bailout in the Senate Banking Committee yesterday. As Victor Davis Hanson writes,
Very odd to see a Sen. Chris Dodd, of all people, today defiant and outspoken in his regard for the people:

if only he had returned (never too late) lavish contributions from Freddie Mac and Frannie Mae (as Senate banking chairman, he was their #1 targeted recipient and raked in over $160,000);

if only in the midst of a loan crisis, he had not received below-market-rate VIP loans from the now late great, melted-down Countrywide for whose parochial interests he championed;

if only he had not been instrumental in blocking past proposed firewalls that might have prevented the collapse of the two agencies that were the catalyst for this mess;

if only he had a bit of contrition for his own role in this national mess.

Surely in the interest of transparency and conflict of interest, any Senator, Republican or Democrat, who accepted money from Freddie and Frannie, or any of the imperiled investment houses, should recuse themselves from the present hearings—but then there might not be a quorum.
These are the same Democrats on the Banking Committee who three years ago blocked reform of Fannie Mae and Freddie Mac thus allowing the problems to metastasize for three more years. Remember, just a couple of months ago, Dodd was denying that there was any problem with Fannie and Freddie...........................

Tuesday, September 23, 2008

Gramm-Leach-Bliley Act vs. Fannie/Freddie

I've been hearing a lot about this present financial debacle being based on the Gramm-Leach-Bliley Act of 1999 which deregulated certain banking sectors. This is mostly put forth by Democrats hoping to draw attention away from THEIR Fannie/Freddie mess. Betsy's page has a good analysis of this.

.....Gramm-Leach-Bliley did not create securitization and collateralized debt obligations. It did not change the rules for banks’ leverage ratios. If anything, Gramm-Leach-Bliley mitigated some risks by allowing financial companies to diversify their businesses, and it is the most diversified firms that are best weathering the storm.........

...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.....

Monday, September 22, 2008

'Crony' Capitalism Is Root Cause Of Fannie And Freddie Troubles

From the Investor's Business Daily.

...It all started, innocently enough, in 1994 with President Clinton's rewrite of the Carter-era Community Reinvestment Act.

Ostensibly intended to help deserving minority families afford homes — a noble idea — it instead led to a reckless surge in mortgage lending that has pushed our financial system to the brink of chaos....

...Fannie and Freddie, the main vehicle for Clinton's multicultural housing policy, drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn't have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an "implicit" government guarantee of the debts.

This created the problem we are having today.

As we noted a week ago, subprime lending surged from around $35 billion in 1994 to nearly $1 trillion last year — for total growth of 2,757% as of last year....

How the Democrats Created the Financial Crisis: Kevin Hassett

From Bloomberg.

....But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally...

....What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.....

A Mortgage Fable

From the September 22, 2008 Wall Street Journal.

Obama, Barney Frank, Bush and Fannie/Freddie

Over at Verum Serum.

NY Times Explains Fannie Mae and the GOP

From the Doug Ross Journal.

WaMu in Orange County CA

From the September 19, 2008 OC Register:

In July 2007, Vijay and Supriti Soni of Corona del Mar paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana.

Five weeks later, they resold the house to Javier Hernandez – the family gardener and handyman – for $660,000. That's a 50 percent gain in 38 days – at a time when real estate prices in Santa Ana were plunging........

The Subprime Loan Machine; Automated Underwriting Software Helped Fuel a Mortgage Boom

More on sub-prime loan software, from the March 23, 2008 NY Times:

...Automated underwriting ''replaced the ways we used to extend credit,'' said Prof. Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard....

..Samir Rohatgi, a vice president at MindBox, said that old system of manual underwriting actually encouraged loan officers working on commission to grant bad loans...

The old cliche' garbage in, garbage out applies here.

The Diversity Recession

From Steve Sailer at VDare:

...In recent times, investors have typically gotten rich in our society by betting on the rich to get richer. And most of the time, that's what happens: the rich get richer. Every so often, however, we have a meltdown because, during the bubble, investors temporarily overestimated the rate at which the rich will get richer—e.g., Silicon Valley in 2000, the Texas oil patch in 1982, commercial real estate developers around 1990, and so forth.....

...What's totally strange about the mortgage meltdown, however, is that the bet, at its base, was on the more marginal members of society to be able to pay off their inflated debts—a bet on the pretty-close-to-poor to get pretty-close-to-rich.

And that made no sense at all....

Sunday, September 21, 2008

Fannie Mae and Countrywide

Fannie Mae and Countrywide, perfect together, from 1999:

NEW YORK--(BUSINESS WIRE)--April 19, 1999--

Fannie Mae (NYSE:FNM), the nation's largest source of financing for home mortgages, and Countrywide Credit Industries, Inc., the nation's largest independent residential mortgage lender, today announced that Countrywide's proprietary automated underwriting system, marketed as e-Approve(TM) and CLUES(TM), will be available on Fannie Mae's MORNETPlus Network...........

WaMu's Story

A Seattle Times Story:

.......................The answer, stripped of the lingo of high finance, is simple: WaMu loaned too much money to people who couldn't afford to pay it back.

From 2004 to the end of 2007, WaMu made $452.5 billion in some of the riskiest types of home loans: subprime loans, home-equity loans and short-term adjustable-rate mortgages, especially so-called "option ARMs," which allowed people to choose how much they wanted to pay each month.

Many borrowers, unsurprisingly, chose to pay as little as possible. Like credit-card users making only the minimum monthly payment, they ended up owing more than they'd originally borrowed.

All in all, more than half of WaMu's real-estate loans during that period were in one of those three categories. And they were the kinds of loans most likely to go sour once the housing boom cooled and the economy started to sputter.........................

.............In addition, WaMu made billions of dollars' worth of loans with only "limited documentation" of the borrowers' income, net worth or credit history. Such loans — often called "liar loans" or "NINJA loans," for "no income, no job or assets" — made up three-quarters of WaMu's option-ARM portfolio at the end of 2007..........

Were these NINJA loans aimed at illegeal aliens?


More on the Fannie/Freddie subprime mess, from the NY Post:

......Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with "100 percent financing . . . no credit scores . . . undocumented income . . . even if you don't report it on your tax returns." Credit counseling is required, of course.

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

Who was that virtuous lender? Why - Countrywide, the nation's largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.......

Thursday, September 18, 2008

Who tried to reform Fannie Mae and Freddie Mac?

An excellent post over at Betsy's page.

$35,000/year salary and a $290,000 mortgage

This story pretty much sums up the root cause of the mortgage crisis.
  • "Cortez makes $35,000 a year and has a poor credit history. Oliver Marquez, a financial counselor at the nonprofit Resurrection Project who advised Cortez, said the original $290,000 mortgage was well beyond his means."
  • "More recently, some lenders have offered Alt-A loans to people who lacked sufficient documentation to get a traditional loan"
Another story from Bloomberg:

  • "McLean, Virginia-based Freddie, which reported an $821 million quarterly loss two days ago, said that Alt-A mortgages were the biggest reason for a surge in its foreclosure losses. The delinquency rate for the $190 billion of the loans owned by Freddie or underlying the bonds the company guarantees jumped to 3.7 percent on June 30, from 1.8 percent on Dec. 31"
  • "For minorities and immigrants, the ownership rate is less than 50 percent and that's what we're focusing a lot on and I think that that's where a lot of the growth in the market will be,'' Freddie Chief Executive Officer Richard Syron said in a interview with Bloomberg Television in 2004."

Wednesday, September 17, 2008

The Real Culprits In This Meltdown

From Investor's Business Daily.

The Real Culprits In This Meltdown

By INVESTOR'S BUSINESS DAILY | Posted Monday, September 15, 2008 4:20 PM PT

Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it.

Read More: Business & Regulation

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

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Monday, September 15, 2008


WHILE campaigning in public for a speedy withdrawal of US troops from Iraq, Sen. Barack Obama has tried in private to persuade Iraqi leaders to delay an agreement on a draw-down of the American military presence.......[more]
Congressional recipients of Fannie Mae and Freddie Mac campaign cash.
The UK increases scrutiny of university degrees. From the BBC. Another one.

Sunday, September 14, 2008

Teacher Salaries in Washington, via Seattle P-I.

How Fannie and Freddie weren't reined-in

A good explanation of how the Fannie and Freddie were allowed to brew from

....Fannie Mae and Freddie Mac were ascendant, giants of the mortgage finance business and key players in the Clinton administration's drive to expand homeownership.....

...In October 1992, a brief debate unfolded on the floor of the House of Representatives over a bill to create a new regulator for Fannie Mae and Freddie Mac. On one side stood Jim Leach, an Iowa Republican concerned that Congress was "hamstringing" this new regulator at the behest of the companies. He warned that the two companies were changing "from being agencies of the public at large to money machines for the stockholding few."

On the other side stood Barney Frank, a Massachusetts Democrat who said the companies served a public purpose. They were in the business of lowering the price of mortgage loans.

Congress chose to create a weak regulator......

.....The Clinton administration wanted to expand the share of Americans who owned homes, which had stagnated below 65 percent throughout the 1980s. Encouraging the growth of the two companies was a key part of that plan......

....The result was a period of unrestrained growth for the companies. They had pioneered the business of selling bundled mortgage loans to investors and now, as demand from investors soared, so did their profits.....

.....Fannie Mae and Freddie Mac enjoyed the nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment,.....

.......In 2003, Richard H. Baker (R-La.), chairman of the House Financial Services subcommittee with oversight over Fannie Mae and Freddie Mac, got information from OFHEO on the salaries paid to executives at both companies. Fannie Mae threatened to sue Baker if he released it, he recalled. Fearing the expense of a court battle, he kept the data secret for a year. Baker, who left office in February, said he had never received a comparable threat from another company in 21 years in Congress. "The political arrogance exhibited in their heyday, there has never been before or since a private entity that exerted that kind of political power,".....

Wednesday, September 10, 2008

College Daze

by Charles Murray
Published in Forbes Magazine 9/1/2008

College is not all it's cracked up to be. Dumbed-down courses, flaky majors and grade inflation have conspired to make the letters B.A. close to meaningless. But another problem with today's colleges is more insidious: They are no longer a good place for young people to make the transition from childhood to adulthood. Today's colleges are structured to prolong adolescence, not to midwife maturity....[more]

Wednesday, September 03, 2008

College is not a Must

From the CSM

College is not a Must

........The total damage inflicted on students by the college-is-for-everyone mentality is incalculable. Students who cannot measure up to the demands for a college curriculum are made to feel like failures...........