Bailout

[Stevebert]

As I understand it, pro-socialist, nanny-state, wealth-redistributing lobbyists pressured Clinton-era lawmakers into passing legislation that forced banks to make risky ("sub-prime") loans to uncreditworthy borrowers to make the "American Dreams" of home ownership and college educations and small business startups etc available to poor minorities, under penalty of being labeled discriminatory and consequently being penalized and obstructed from growing their businesses (mergers, new branches, etc.)

These banks then could "sell" these bad loans to Fannie Mae and Freddie Mac (so-called private mortgage holders playing with government, i.e. taxpayer, money and poorly monitored), thus acquiring quick capital with which to make more bad loans, either to those with poor credit (and who may not even have been US citizens- it was politically incorrect to check for legal/illegal immigrant status, and many loan officers did not even bother to verify income) or to greedy speculators who never even intended to live in their new $400K homes but expected to "flip" them for $500K after a year.

When this insane housing bubble burst, when the price of homes finally dropped (self-corrected) but those poor people whose desires were bigger than their wages, or when those speculators whose gambles failed, discovered they couldn't make mortgage payments or resell their properties, they defaulted, and left either their banks or Fannie/Freddie holding uncollectable millions in IOUs, precipitating a huge credit crisis which rippled into the larger national and global economy. There's too much useless paper and not enough real money to keep the economy going. Nobody among those big brains at the Treasury has suggested the word "Depression" yet but that might be the elephant in the middle of the room, making a costly solution so "urgent." And forcing on us the imminent prospect of the largest quasi-Marxist nationalization of financial institutions since Roosevelt.

Any correction or "regulation" that occurs during our current bailout fiasco should acknowledge and reverse the above-mentioned BAD ECONOMICS of the Clintonian-Obamayan socialists (I throw in ghetto organizer Obama's name because he was one of the main recipients of Freddie Mac campaign contributions and is firmly entrenched in that corrupt system). And for the record, both GW Bush and Maverick McCain tried to warn us a few years ago that this wildly popular democrat "EZ home-buying for the poor and oppressed minorities" system needed fixing.

[jdcord]

As I understand it, pro-socialist, nanny-state, wealth-redistributing lobbyists pressured Clinton-era lawmakers into passing legislation that forced banks to make risky ("sub-prime") loans to uncreditworthy borrowers to make the "American Dreams" of home ownership and college educations and small business startups etc available to poor minorities, under penalty of being labeled discriminatory and consequently being penalized and obstructed from growing their businesses (mergers, new branches, etc.)

Your understanding of this situation is absolutely correct, young grasshopper.  That is exactly what happened.

[BenJammin]

The very basis of Capitalism is that PRIVATE CORPORATIONS have the right to either succeed or fail - based on their individual performance - WITHOUT interference from the government.  Based on this, I am diametrically opposed to the bailout.

[drummr]

I have no idea what is going on.  I think many of these big finance guys should
be locked up and lose the key.  It may be that the best thing that could happen
would be a crash.  If these guys dive out a window, so be it.

[dnr1128]

The last time there was a crash, it took a world war to get us out. 

[drummr]

The last time there was a crash, it took a world war to get us out. 

So much opportunity . . .

[jdcord]

The last time there was a crash, it took a world war to get us out. 

Actually, that is a myth (but one that war-mongers in both major Parties are happy to propagate, of course).  The economy was doing pretty well by 1941, but entry into WWII set it back again.  After that, the economy didn't really take off again until after the war was over.

Historically, wars simply do not help economies - Russia during WWI is a perfect example.  And even if wars really could somehow manage to help economies (instead of hinder them), in order to do so basic economic principles would essentially have to be obliterated along the way.

[dnr1128]

What then do you suppose got us out of the depression?  It wasn't the New Deal.  The economy began growing again in 1933, and kept doing so untill 1937, at which point it turned down again, and didn't recover untill 1941, when the US entered WW2.  17% of US males were drafted; airplane factories were built, and the military machine got cranked up.  That is what restarted the economy. 

I really don't think this current crises is nearly on the scale as the great depression.  Mortgage companies made loans to non-creditworthy applicants, and now those bonds are worthless on the market. 

You are correct that regulation has contributed to this mess;  in Sarbane-Oxley, publicly traded companies are required to restate their market value every day.  So, Merril Lynch has billions in ARM mortgages in the form of bonds.  On the market these bonds are worthless, because nobody wants them.  But the actual real estate that is inside those bonds ISN'T worthless.  It hasn't just lost it's value simply because the bond stinks.  If the mortgage companies could go for a short period of time without restating their value, they could move these properties on to other companies who could then forclose on them, and recoup some losses.  These companies aren't bankrupt, except on paper.

[BenJammin]

During the Clinton administration, in order to enhance minority ownership of homes, the regulations were loosened on the banks and the subprime market was created.  It was never a matter of IF it would cause a crisis, rather WHEN the crisis would begin and how extensive the damage would be.

[Kyle]

Bailout failed.

[dnr1128]

The subprime market was created by loosening of credit restrictions.  But it is still up to the underwriter of each individual bank or mortgage company to decide who to lend to.  The companies took incredible risks by lending to people who weren't by any stretch of the imagination creditworthy, and now they're paying for their greed.

[Stevebert]

Bailout failed.

Because Bush-hater Pelosi couldn't resist the opportunity to blast the president's so called "failed" economic policies and Repubs, and many Dems, who know the real story- Clinton socialist lending pressure- gagged and spit her out. Wonder what will happen next.

[BenJammin]

dnr, you are, of course, correct in your assessment.  However, take a look at this list of facts...



The cause, in a nutshell:

1. Congress (under Jimmy Carter) passes a bill making it illegal for banks to "redline" (that is, they can't ignore poor neighborhoods because that would be discrimination).

2. In 1992, Clinton can't get elected by saying "Vote for me and I'll give $250,000 in tax dollars to all poor people so they can buy a house" so he instead says "I feel your pain" to get into office.

3. Clinton changes the rules so that banks are faced with $10,000 fines (or 1% of assets, whichever is less) per-loan-application if they discriminate against the poor. In other words, the government FORCES banks to make bad loans.

4. To soften the load, Clinton reduces the Fannie Mae "reserve requirement" to an astoundingly low 2.5%! (They need to keep only $2.50 in cash for every $100 loaned!) Banks, faced with $10,000 fines, respond by making bad loans and immediately dumping them on Fannie Mae.

5. Clinton rule changes also require banks to count WELFARE CHECKS AND FOOD STAMPS as "income" for loan applications!

6. Senate Democrats demand that Fannie Mae buy more bad loans to "help the poor become homeowners."

7. Radicals Islamists attack the U.S. on 9/11. To keep the economy from tanking because of the terrorist attack, the Federal Reserve keeps interest rates artifically low - to stimulate the economy. These low interest rates make it even easier for people to get mortgages.

8. Because Fannie Mae is buying up bad loans like candy, banks keep making them.

9. Conservatives see the handwriting on the wall and start complaining.

10. Fannie Mae CEOs James Johnson and Franklin Raines "cook the books" to give themselves, and other former Clinton buddies at Fannie Mae, bigger bonuses.

11. Raines (like, Johnson, later an Obama advisor) is forced to resign and pay back millions.

12. Because many poor people entered the housing market, there are MORE buyers chasing the same number of houses available. That makes prices go up - much faster than the inflation rate. (Duh! If more people want the same house, the seller can charge more!)

13. More conservatives warn Congress of trouble ahead. Barney Frank (D-MA) and other Dems say "Don't worry, be happy." Maxine Waters (D-CA) says Republicans are racists for wanting to rein in Fannie Mae to prevent poor blacks from buying houses. Waters praises the crook Franklin Raines.

14. John McCain submits a Fannie Mae reform bill in 2005. Senator Chris Dodd (D-CN) gets his fellow Dems to promptly vote against it; it never leaves his banking committee and thus never gets voted on by the full Senate. Dodd gets a boatload of cash from Fannie Mae for his campaigns, more than any other Senator (Obama is in second place).

15. Everything explodes in 2008.

16. Secretary Paulson (a Democrat) persuades a non-functioning President Bush to go along with a bailout.

17. At a White House meeting, Dems feed their talking points to Obama so he can look good. He screws up, and lambasts the Republicans - angering them enough so that they have no desire to help.

18. Frank, Dodd, Reid, Pelosi blame the Republicans. The media piles on, ignoring the real cause of the crisis, in an effort to elect their socialist pal Obama. They all know the Dems caused the problems, but why burden Americans with the truth?

19. Conservatives in Congress say NO to socialism.

20. Americans say NO to socialism.

21. Democrats say THIS IS CRITICAL, WE MUST ACT! and then take a day off for a Jewish holiday. (Better to risk destroying the economy than lose Jewish votes in November 4.)

22. McCain - foolishly - supports the bailout, reprising his role as the "Democrat-lite" candidate.

23. Sarah Palin will hopefully expose the Dems for their part in the mess during her debate with Biden.

24. Americans are screwed, no matter what happens.

The full details at:

http://colony14.net/id46.html

[dnr1128]

Of course the republicans are at fault, cause Bush hates poor people.  Or something like that. 

The Financial Mess: How We Got Here
By Abraham H. Miller


"How can you vote Republican when they so messed up the economy?" a liberal friend screams at me with such vehemence that I had to put the phone a full arms length from my ear.  Of course, my friend never heard of the Community Reinvestment Act.  He is one of those mindless liberals who thinks that George Bush and the Republicans are responsible for everything from Global Warming to Hurricane Katrina to the attempted genocide of the entire black population of New Orleans.

He claims to be informed but he doesn't remember those dire warnings going back nine years ago that the Community Reinvestment Act would eventually cause a major financial and banking crisis in this country.  

The Community Reinvestment Act was pushed hard by Bill Clinton, although it originated under Jimmy Carter.  Asked about it the other day on one of the morning TV talk shows, Clinton said times back then were different. Fannie and Freddie had lots of money and he (in his infinite wisdom) decided that the money should not go to share holders or to executive compensation, but should be used to put the poor into homes.

As you can imagine, wonderful things happen when the government strong arms corporations as to how they should spend their money and, better yet, how they should assess the qualifications of home buyers.  So the country's biggest buyers of mortgages were pressured into lowering the qualifications of applicants, in order to increase the percentage of poor that got mortgages.  By 2006, 30% of all mortgages went to people who in any other circumstances wouldn't qualify.

Now the political left would like you to know that the CRA-controlled institutions did not lend the largest percentage of sub-prime mortgages. But that's information by deception, because the mortgage business is a competitive business.  If the government strong arms one part of the business, the other part will respond.  And strong arm was what the Clinton administration did, even using the Office of the Comptroller of the Currency to pressure banks to lend more money to the disadvantaged. Caught in the act, a spokesman for the office noted that its abuse of power was "for the best of intentions:" the same inclination used to pave the road to hell.

In the short run, all sorts of money was to be made by lowering standards and processing sub-prime loans for the poor. The Wall Street Journal raised concerns about Fannie's and Freddie's capital requirements.  Senator Phil Gramm  (R, TX) raised issues about community pressure groups, such as Barack Obama's ACORN, extorting money from banks by holding their feet to the CRA fire, and threatening to militate against mergers and acquisitions unless the banks entered into preferential agreements with community groups.

The Gramm-Leach-Bliley Act cut down on CRA reporting requirements and upped the ante for groups such as ACORN, forcing them to disclose their relationships with local banks.

Fannie and Freddie became big contributors to the Democratic Party.  The sub-prime business paid off-at least while the bubble was growing. And the Kerry, Hillary and Obama campaigns have numbered among the leading recipients of the largess of the two mortgage lenders.

Franklin Raines, the Fannie Mae C.E.O. from 1999 to 2004, had been budget director in the Clinton administration.  The left would not like you to be reminded that Raines has been a consultant to the Obama campaign, according to the Washington Post, and that Freddie and Fannie number among the top 5 contributors to Obama's run for the presidency.  Raines is being sued for the recovery of 50 million in compensation acquired by the alleged manipulation of Fannie's books. Now, that's not change we can believe in.  That's Washington as we have come to know and "love" it.

The Bush administration in 2003 tried to change the system, to no avail. Congressman Barney Frank, (D, MA ) was in the forefront of stopping the Bush proposal to take control out of Fannie and Freddie and put it into a third overseeing organization.  Frank too has emerged in the current crisis as one of the major critics of the administration.

Former Federal Reserve Chairman Alan Greenspan continued to raise the alarm over Fannie's and Freddie's weak capitalization.  His concerns were ignored.

Former Congressman Michael Oxley (R,OH), then chairman of the House Financial Services Committee and  co-author of the Sarbanes-Oxley Act, introduced a bill in 2005 in response to the growing problem, but Fannie and Freddie put their lobbyists to work and the bill died.

Democratic Senator Chris Dodd, who is now Chairman of the Banking Committee and who appears along side  Majority Leader Harry Reid on television to discuss the current bailout negotiations,  has had harsh words for the Bush administration for its alleged role in the crisis.

But the rest of us should have some harsh words for Senator Dodd.  After all, the Bush administration in 2003 and Senator Phil Gramm even earlier, in 1999, had been working to change the system.  Dodd, like Obama, has been a big recipient of campaign funds from  Fannie and Freddie, organizations that Dodd oversees.  Dodd has apparently been more consumed with campaign contributions from the mortgage giants than the responsibilities of oversight.

When I point out the long trail of  Obama's  corruption stretching back to his days in the Illinois legislature, my liberal friends invoke moral equivalence, "They're all corrupt."

There is no shame among the left.  When they think Bush is responsible for the collapse of the banking system, they scream at you.  When you point out that the Community Reinvestment Act created a pattern of abuse that now threatens the entire financial system, without hesitation liberals say, "They're all corrupt."

The Federal Deposit Insurance Corporation even has a web site so you could see how well your bank is meeting its obligations under the CRA.  Those of you who had  money in Washington Mutual, which just went belly up, will be happy to know that WaMu, over the five individual reporting periods, had almost exemplary ratings on its commitment to CRA. That should give WaMu depositors great joy, to compensate for the financial mess they may be in.  If WaMu had been less responsive to the CRA and more responsive to the market, maybe it wouldn't be insolvent.        

I am not suggesting that the CRA by itself led to the current crisis, but the CRA was the first and most important part of the food chain.   The CRA caused the expansion in the number of questionable loans that lending institutions made, but Wall Street and insurance underwriters were all to willing to package these loans, enhance their ratings through convenient exercises in fantasy, sell them, and insure them with reserves that were more inadequate than the incomes of the people who got the loans in the first place..

The best thing that can emerge from the current financial crisis is the realization that the government needs to stop directing economic decision making.  In a sense, the government is putting out a fire it started when it both created the CRA and assessed lending institutions by how well they were doing in response to the program. When Clinton decided, in his usual arrogance, that he knew better than the market how banks should lend money, the seeds were sown for the current financial disaster.

If you want to blame Bush for the current crisis, it might make you feel good, reinforce your sense of how the world works, enable you to find a meeting of the minds when you next engage your liberal friends over wine and quiche, but like so many things you believe and which make you feel good, it has no correspondence to reality. 

http://www.americanthinker.com/2008/09/the_financial_mess_how_we_got.html


Regardless of the outcome, I don't see that the economy will collapse if this bailout isn't passed.  People will still go to work, products will be made, sold, bought, and people will do their thing. There's an ulterior reason for the bailout being pushed so hard.  Hm...fodder for thought.

[dnr1128]

Here's another article that shows the reasons for the mess we currently have:

http://colony14.net/id46.html

Too long to copy here

[rootbeer]

I think it's good that the bailout failed.  It's not right for taxpayers, many of whom struggle to have a decent mobile home, to have to help people keep their $250,000 homes.
I keep reading about home prices falling, but around here they are higher than ever, and people are still buying them.

[dnr1128]

Here's more opinions on why the markets won't collapse, and why this bailout is a bad idea. 


http://www.rushlimbaugh.com/home/daily/site_093008/content/01125106.guest.html

http://www.daveramsey.com/media/pdf/the_common_sense_fix.pdf