Wednesday, October 8, 2008

Posted for WEBY

From Mike:

"What the Democrats and the mainstream press (my apologies for being redundant) won't tell you... This was published on September 30, 1999 during Clinton's presidency, so this is not a matter of hindsight being 20/20. This is critical to read and forward!!! Subprime Mortgage Mess: How it got started: read New York Times, Fannie Mae Eases Credit To Aid Mortgage Lending

And then it gets worse..... read this September 11, 2003, article about how the Bush Administration tried to prevent the mortgage meltdown and was stopped by the Democrats: New York Times, New Agency Proposed to Oversee Freddie Mac and Fannie Mae"

Comment from Professor NoBullBert:

"Mike gets a C for effort, and a D for understanding. Read my posts label Bailout, especially the following:

The Bailout is Not Working

The bailout doesn't seem to be working. The problem isn’t just $1 trillion in subprime loans, the problem is $62trillion in credit default swap liability (CDS) for collateral debt obligations (CDOs) that no one can unravel or value (or even understand).

What is a CDO or CDS? Imagine taking paper debt like mortgages, subprime mortgages, car loans, credit cards loans, and pretty much anything you can imagine. Now combine and mix the paper in a blender, spiking it with worthless rhetorical hyperbole that derivatives are the new paradigm of investments. Then pour the mixture in a pyramid of champagne glasses, to represent the varying levels of return (and risk), with the higher the glass, the lower the risk return and risk. That represents the CDOs. Now as you sell the mess, insure against the risk of the CDOs decreasing in value with CDSs. Presto, $1 trillion of bad loans is transmuted into $62 trillion in faux wealth. An alchemist would be proud.

That I think is a fair metaphor for the problem, and because of the scope of the problem the Feds don't know what to do. The 1929 depression offers a valuable lesson. A recent article in Time, Are Paulson and Bernanke Running Out of Options? states that:

"After the 1929 collapse, which at its worst left a quarter of the workforce jobless, the U.S. instituted safeguards to ensure liquidity, confidence and trust in the U.S. financial system. There were four pillars: insuring the bank deposits of everyday Americans, allowing access to government funds in case of a panic, providing a regime for the orderly failure of badly run companies and limiting how much credit could be leveraged off a particular asset."

The government should do the same now, defend depository institutions and provide a regime for the orderly failure of badly run non-depository financial institutions and insurance companies. In the process the government and the public will have to make some tough choices and learn to live within a budget.

What do you think?

P.S. Somebody should pay me for this, I prefer gold until further notice.

Iraq Ain't Over Til Bush Quits Kickin the Can

Another problem for the next president is Iraq. George W. (The Worst) Bush has been kicking the can for so long, most have forgotten about Iraq. Read McClatchy Newspapers, New U.S. intelligence report warns 'victory' not certain in Iraq:

"A nearly completed high-level U.S. intelligence analysis warns that unresolved ethnic and sectarian tensions in Iraq could unleash a new wave of violence, potentially reversing the major security and political gains achieved over the last year. . . .

U.S. officials say last year's surge of 30,000 troops, all of whom have been withdrawn, was just one reason for the improvements. Other factors include the truce declared by anti-U.S. cleric Muqtada al Sadr, the leader of an Iran-backed Shiite Muslim militia; and the enlistment of former Sunni insurgents in Awakening groups created by the U.S. military to fight al Qaida in Iraq and other extremists.

The draft NIE, however, warns that the improvements in security and political progress, like the recent passage of a provincial election law, are threatened by lingering disputes between the majority Shiite Arabs, Sunni Arabs, Kurds and other minorities, the U.S. officials said."

Another fine mess the Republi-cons got us into.

Bush, The Lamest Duck

Listen to George W. (The Worst) Bush in his own words as he tries to duck responsibility.

After losing this year's Nobel Peace Prize, Bush is still hoping to win the Nobel Prize for Economics.

More Proof That Republi-cons are at Fault for the Economic Mess

Read it and weep. Bush promoted aggressive lending to first-time home buyers. In a speech titled 'Remarks by the President in a Conversation on Homeownership' made at the Phoenix Carpenters Training Center in 2004 Bush said:

"One other thing I've done, is I've called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. There's a lot of people in this -- our communities around the country that deeply care about the issue of homeownership, and they've been responsive."

So instead of blaming FDR and Carter, it is important to understand the many and complex reasons for the current economic mess. Barry Ritholtz sums it up well:

"To repeat my prior arguments, the proximate cause of the Housing crisis were 1) Ultra-low rates; and 2) Abdication of traditional lending standards, thanks to 3) originators ability to resell mortgages for securitization purposes, and hence, 4) not have to worry about loan defaults.

The credit crisis was caused by 1) the above securitized mortgage paper, that was 2) rated triple AAA by Moody's and Standard & Poors, which then 3) Which was then "insured" by credit default swaps (CDS) -- the unreserved for, shadow insurance products 4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance."

Ritholtz also shows that it was excessive deregulation and not the Community Reinvestment Act (CRA) of 1977 that is responsible for the fine mess we find ourselves in. He argues:

"Let's clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

• Did the GSEs require banks to not check credit scores? Assets? Income?

• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

• What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?

The answer to all of the above questions is no, none, and nothing at all.

The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron's, there is plenty of things to be angry at D.C. about -- but this ain't one of them.

If you were to ask me to reveal the prime causative factor for the Housing boom, I would point you to Fed Chairman Greenspan taking rates to 1%, and then leaving them there for a year. The prime factor in the bust was nonfeasance on the Fed's part in supervising bank lending, allowing banks to give money to people who couldn't possibly pay it back.

The root legislative cause of the credit crisis was excessive deregulation. From exempting derivatives from regulation (2000 Commodities Futures Modernization Act) to failing to adequately oversee ratings agencies that slapped a triple AAA on junk paper, the pendulum swung too far away from reasonable oversight. By taking the refs off of the field and erroneously expecting market participants could self-regulate, the powers that be in DC gave the players on Wall Street enough rope to hang themselves with -- which they promptly did."

Next thing ya know, the Republi-cons will blame little green men.

McCain Should Finish The Campaign With Honor

McCain should finish the campaign with honor.

No matter all the nutty things he's done, and vile things his campaign has said, given the economic situation, it seems unlikely that McCain will win over the independent voters he needs. Read Time, They Liked Him, They Really Liked Him and take a look at recent polls by Time (scroll down for poll on the right side, yes I know, Internet polls are not scientific, but the results are interesting nonetheless) and you'll see that it ain't McCain that they are likin.

McCain claims that he is an honorable man. He knows the mission of the U.S. Naval Academy:

"To develop midshipmen morally, mentally and physically and to imbue them with the highest ideals of duty, honor and loyalty in order to provide graduates who are dedicated to a career of naval service and have potential for future development in mind and character to assume the highest responsibilities of command, citizenship and government."

Because of George W. (The Worst) Bush, McCain will be denied the presidency twice. (You might remember that in 2000 Bush slandered McCain with rumors that he had fathered an out of wedlock a black baby, she was actually a Bangladeshi infant girl adopted by the McCains. Bush also spread rumors of mental instability. All to stop McCain from winning South Carolina, Lee Atwater's home state, after McCain had won the primary in New Hampshire.) (BTW, why do military folk slavishly love the Republi-cons. Another military victim of the Bush slime machine was Max Cleland, who had three limbs blown off in Vietnam. Republi-cons placing him next to Osama bin Laden and Saddam Hussein in television ads for the 2002 Georgia Senate election.)

Mr. McCain, after the campaign is over, will you have your honor?

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McCain's No Maverick

He proudly wears the Republi-con brand, so McCain ain't no maverick.

McCain's Mud Pies and Palin's Patriotic Loans From China (That The Kids Will Payback)

Republi-cons hate Maureen Dowd. Find out why by reading column today, New York Times, Mud Pies for ‘That One.’ In it she argues that "John McCain has long been torn between wanting to succeed and serving a higher cause. Right now, the drive to succeed is trumping any loftier aspirations."

Thomas Friedman's column today, New York Times, Palin’s Kind of Patriotism, is also worth a read. In it he says "Do you think borrowing money from China is more patriotic than raising it in taxes from Americans?” That is not putting America first. That is selling America first."

He also said "putting the country in the position where a total novice like Sarah Palin could be asked to steer us through possibly the most serious economic crisis of our lives is flat out reckless. It is the opposite of conservative."

Republi-cons are not conservative, they are delusional.