Bicolored Cactus Flowers wallpaper – Good Government Could Have Saved Us From The Financial Meltdown

Bicolored Cactus Flowers wallpaper

 

Gretchen Morgenson is not a hack. So I’m not sure what happened in her new book on the housing bubble and Wall St financial collapse – Fannie-Backwards, How did Gretchen Morgenson, one of America’s best financial reporters, get the story of Fannie Mae’s role in the financial collapse so wrong?

The first contention is speculative. But even if Fannie’s embrace of expanded homeownership was entirely self-serving, the second and more serious allegation is false. For starters, the timing is off. Fannie did start purchasing large numbers of sketchy mortgages, in an effort to defend its market share, but only around 2004. By then, subprime was a huge industry with plenty of buyers on Wall Street. As late as 2005, according to Reckless Endangerment, non-Fannie mortgage-backed securities packaged by Wall Street investment banks accounted for 55 percent of mortgage volume.

As Morgenson and Rosner obliquely acknowledge elsewhere in the book, other Wall Street firms created the subprime bubble precisely because Fannie would not buy those loans. Morgenson and Rosner admit this contradiction when they write of the Wall Street-financed boom in poor-quality loans that took off circa 2001: “Because higher-quality borrowers were still at this time the domain of Fannie Mae and Freddie Mac, Wall Street could not hope to compete in this area. So the big investment firms stepped up their interest in alternative mortgage products offered to sub-prime or near-prime borrowers.” In other words, Wall Street went where Fannie prudently feared to tread.

We don’t do subtle Occam razor-like debates in the U.S. facts stopped mattering years ago. Fannie and Freddie did some things they should not have done. Both of them actually lost market share in sub-prime loans between 2002 and 2007. Private banks were the ones who kept feeding the beast. Making risky loans and selling them as securities. Wall St encouraged them to do so. Freddie and Fannie do not make loans by the way. They buy loans. The thing that got them into trouble, or at least one of the practices was not scrutinizing the loans they bought from banks. One could certainly make the argument that the banks themselves should have done a better job of vetting loans and adhering to some quaint old practices like not loaning more than their assets could support in the case of, I don’t know, a housing meltdown. Of course banks were thrilled that there was a Fannie and Freddie because technically speaking they could sell some of their loans, recover that capital and make more money off points on even more new loans. The ‘facts’ in Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon By Gretchen Morgenson and Joshua Rosner get down right sloppy. Anyone over forty knows this one,

Morgenson and Rosner contend that Fannie’s perdition began in the mid-1990s when the company started purchasing mortgages with down payments of just 5 percent. “Traditionally,” they write, “banks had required that borrowers put 20 percent of the property price down to secure a mortgage loan.” That’s an embarrassingly novice mistake. Veterans’ loans under the GI bill accepted zero down payments. For decades, the Federal Housing Administration has insured loans with down payments of 5 percent—and these loans were purchased by Fannie Mae. Private mortgage insurers, which began competing with the FHA in the 1960s, also offered insured loans with small down payments. How could Morgenson and Rosner have missed something so basic and central to the story? What made these loans safe and insurable and liquid in the secondary market was careful underwriting, of the property value and the borrower’s capacity to pay, not the down payment. It was the lack of serious underwriting that made subprime such a disaster.

Why is this Fannie/Freddie issue important. In ConservoWorld unions and working class Americas are thugs, and any government sponsored entity is evil. Another myth of ConservoWorld is that all private business Bears-Stearn, AIG Financial and all private enterprise are white knights that can do no wrong. Remember that initially, back in 2008, one of the tea smokers big populist complaints was they didn’t do anything wrong so how come they should have THEIR tax dollars bail-out Wall St. Once elected to Congress they did everything they could to defeat new financial regulations and later try to keep financial regulations from being implemented. Not much of a surprise since the tea nuts became largely a tool of plastic roots organizations like FreedomWorks. Sure there have been some genuine tea baggers, but even they tend to repeat what they have read in literature put out by front groups connected ultimately to Wall St. Few, if any of the tea baggers get the irony of their so-called pro-business anti-government platform. Government, including Obama and most Democrats, is for the most part an operating arm of financial interests on Wall St. It was the conservative mantra of deregulation or simply not enforcing the regulation we did have that lead to the financial collapse. Government has an important role to play as referee – enforcing the rules so consumers and investors don’t get the shaft. Whether they are tea bags or just plain old conservatives they’ll never admit we need a referee. If we have another recession as severe as this one, and we will if the financial reform regulation package passed by Obama and Democrats is not diligently enforced, conservatives will once again play the deaf, blind and babbling nonsense monkey. For Cons to admit that government can work for the people, that given a chance government can protect people from the worse excesses of the private sector is to admit their core philosophy is wrong. One fairly clever aspect of the government is always bad argument is the appeal to individual independence. We’re all tough rugged individualists in America and we don’t need no help from  gov’mint. We are a nation that prides ourselves on being as self-sufficient as possible. That is a good thing. Like many concepts in the larger general sense that one can be perverted. Raise your hand if you get a say in how AIG or Goldman or Bank of America runs their business and when they engage in crazy risk taking they’ll stop because you object. Yea, that doesn’t happen because even a big group of angry sign wavers has zip influence on Wall St bundling risky securities. The only way you as a rugged individualist can have a say is by empowering the government and a crew of experts to act as a watchdog on your behalf. I’m going to make a leap and say that the average conservative does understand that they cannot fight crime all by themselves. They understand the need for a modern well-educated and trained police force. Why do these same conservatives not understand the concept is exactly the same when it comes to regulating business and prosecuting white-collar crime. One last excerpt from that excellent article by Robert Kuttner,

So in the rogues’ gallery of scoundrels that caused the financial collapse, a fair reckoning would rank Fannie Mae fifth or sixth. Far higher on the list would be:

  *Alan Greenspan’s Federal Reserve, which lowered interest rates without increasing regulation, refused to enforce a 1994 law requiring prudent underwriting standards and turned a blind eye to abuses in the process of loan securitization.
*The Office of Thrift Supervision, which let savings banks under its supervision engage in outlandishly risky practices.
*The Wall Street firms that bankrolled subprime lenders and turned their high-risk loans into securities
*The credit-rating agencies that blessed toxic subprime securities with Triple-A ratings.
*The SEC’s failure to police those agencies.
*And, of course, the subprime lenders themselves.

Three Charts To Email To Your Right-Wing Brother-In-Law

Problem: Your right-wing brother-in-law is plugged into the FOX-Limbaugh lie machine, and keeps sending you emails about “Obama spending” and “Obama deficits” and how the “Stimulus” just made things worse. Solution: Here are three “reality-based” charts to send to him. These charts show what actually happened.

Spending
Bush-Obama Spending Chart

Government spending increased dramatically under Bush. It has not increased much under Obama. Note that this chart does not reflect any spending cuts resulting from deficit-cutting deals.

The other two are at the link. At this point, thanks to the wing-nut noise machine and the abject failure of the mainstream media to explain anything, most of the nation has become riders on the bandwagon of austerity – the answer to our problems is to cut and cut some more. Cutting spending and cutting public sector jobs is just prolonging the recovery. Heck some of us might not even live long enough to see a complete recovery. For some very dark commentary/satire on the subject – Ghost Dogs and the New American Job Market

I’m going to tell my kids that if they want to achieve their dreams they’re going to have to lower the bar or take that bar and use it to fight off everything that wants to steal their dreams away from them.

 

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