Financial Meltdown Whitewash

[Stalin]

Note the timing

This report will be ignored because of events in Egypt

"...The report itself constitutes an exercise in defending the culpable parties through a combination of impotent moralizing and obscurantism. Where possible, the panelists sought to implicate the American public in the bankers’ fraud. Bob Graham, a panelist and retired senator, concluded his remarks with the words, “in sum, we reaped what we had sown.” Heather Murren, a panelist and former employee of Merrill Lynch, added that the causes of the crisis “stretched from the living room to the boardroom.”

Aside from overt attempts to blame the American public, the panel follows the now well-established model of spreading blame so broadly that accountability disappears. The panel concluded that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.” The panelists, particularly Angelides, adamantly proclaimed that regulators had the power to prevent the crisis, but failed to do so. Yet when asked by reporters whether the heads of the treasury and Federal Reserve were in any way responsible, Angelides sidestepped the question.

Apart from faulting regulators, the panel concluded that the crisis was caused by a “systemic breakdown in accountability and ethics” on the part of corporate executives.

This is a truism. Yet no major figure from either government or from the big banks has been prosecuted in connection with the financial meltdown. It defies belief that “a systematic breakdown of ethics” resulting in hundreds of billions in losses could take place in corporate boardrooms without any breaches of the law.

Despite its role as an official whitewash, the commission's findings contain some substantive information. For instance, the report admits the widely reported claim that Goldman Sachs, the most profitable Wall Street firm in history, received $2.9 billion as a part of the bailout of AIG, the failed insurance agency.

http://www.wsws.org/articles/2011/jan2011/fcic-j28.shtml

Comrade Stalin

 

[Rick]

The report IS a whitewash, but in the opposite way you suggest. The cause of the crash was the 1990s enhanced provisions of the Community Reinvestment Act, passed by Carter and his democrat congress in the late 70s. Bill Clinton appointed Franklin Raines head of Fanny Mae, with marching orders to get millions of sub-prime loans cranked out to uncreditworthy borrowers as fast as he could, in service to the democrat party's minority clients. Banks were happy to comply, as Fanny Mae acted as a secondary market for such mortgages. "Community organizations" such as ACORN played a part, intimidating banks into to making such loans, and banks were implicitly threatened into going along with this gigantic scam with threats of prosecution under the anti-redlining provisions of the CRA. The Federal Reserve played its part, keeping interest rates artificially low, in a replay of the principal cause of the Great Depression. This created the housing price bubble over the next decade, with the crash finally coming in 2008.

Once again, it was just as Reagan said: government isn't the solution - it's the problem.

 

[Little-Acorn]

Looks like it's time for a reiteration.

I wrote this in November 2008, a week after the election, after seeing the videos on Youtube. The history it describes, is just as true now as it was then, and just as true as when it happened over the span of the last 30 years or so.

Once we get through the obligatory "Fox News always lies" hysteria from the usual suspects, these events of the past are very much worth discussing.

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Have you seen the Special Report composed by Fox News, on the financial crisis? It's a hour-long show, and been broadcast several times. Someone has put it on YouTube, in six segments. Fox calls it "Saving Our Economy". Go to YouTube and do a search on that title, and you should get all six segments. They vary from 5 to 10 minutes each, about 45 minutes running time total (no commercials).

It's a GREAT explanation of how the crisis started, who did what, what the results were, etc. A real must-see.

Here's a summary:

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Sept. 23, 2008: Treasury Secretary Henry Paulson: "The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking up mortgages they couldn't afford."

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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.

 

[Little-Acorn]

("Saving our Economy" continued)

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 encouraging 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.

 

[Stalin]

The report IS a whitewash, but in the opposite way you suggest.
Once again, it was just as Reagan said: government isn't the solution - it's the problem.

Thanks for that.

Some references would be appreciated.

Comrade Stalin

 

[Rick]

Thanks for that.

Some references would be appreciated.

Comrade Stalin

Er......uh..........read the rest of the post.

 

[Porter]

The report IS a whitewash, but in the opposite way you suggest. The cause of the crash was the 1990s enhanced provisions of the Community Reinvestment Act, passed by Carter and his democrat congress in the late 70s. Bill Clinton appointed Franklin Raines head of Fanny Mae, with marching orders to get millions of sub-prime loans cranked out to uncreditworthy borrowers as fast as he could, in service to the democrat party's minority clients. Banks were happy to comply, as Fanny Mae acted as a secondary market for such mortgages. "Community organizations" such as ACORN played a part, intimidating banks into to making such loans, and banks were implicitly threatened into going along with this gigantic scam with threats of prosecution under the anti-redlining provisions of the CRA. The Federal Reserve played its part, keeping interest rates artificially low, in a replay of the principal cause of the Great Depression. This created the housing price bubble over the next decade, with the crash finally coming in 2008.

Once again, it was just as Reagan said: government isn't the solution - it's the problem.

The CRA had absolutely nothing to to with the housing bubble or it's collapse. Anyone that believes that has been totally brainwashed.

Only a small portion of subprime mortgage originations is
related to the CRA. Second, CRA-related loans appear to perform
comparably to other types of subprime loans. Taken together, the
available evidence seems to run counter to the contention that the CRA
contributed in any substantive way to the current mortgage crisis

 

[Rick]

The CRA had absolutely nothing to to with the housing bubble or it's collapse. Anyone that believes that has been totally brainwashed.

It WAS the collapse. The claim that CRA loans perform is hogwash for which you have no credible evidence. Bill Clinton's man, Franklin Raines, who personally made almost a billion dollars from the CRA scam, directed Fanny Mae to back millions of subprime mortgages as a payoff to the democrats' minority constituency. Then, when private firms saw Fanny Mae raking in money hand over fist, they jumped in the market that had been created by Fanny Mae. Their competitors had to follow suit, or lose out competitively by having poor profit reports, and eventually being acquired. There's no way in the world private firms would have, or could have, created the subprime market. The attempts to divert attention to the irrelevency of the relative number of loans seeks to exculpate the government malefactors by trying to substitute in peoples' minds the proximate "cause" for the fundamental cause. This episode joins the long line of examples of what happens when dimwitted, economically ignorant statists misuse government power to tamper with markets. And as usual, when they cause great harm to tens of millions of people, they blame it on "capitalism".

 

[steveox]

Obama is not doing his job. He Promosed Socialism in America. Now he missed that chance all because the focused on HEALTHCARE all last year. Look at China for example. They will not allow a global market economy in theur country. China is a socialist power nation. They wont allow Gas prices fixing. And the Media is being biased again. If this was Bush in office the Media would be investgating this. This is exact reason why MSNBC,NBC NEWS and CBS NEWS is dying.