Are mortgages building society or is the US for sale?
Who Caused it? – Who Can Fix It?
By Joseph J Kusnell for Boomeryearbook.com
INSERT: JANUARY 26, 2009:
The following article is going to discuss how America got into this financial mess. It was written a few months ago. The article is going to say that the Democratic party of Bill Clinton, Chris Dodd, Chuck Schummer, Barney Frank, CEO’s Jim Johnson and Franklin Raines (Fannie Mae and Freddie Mac) along with the complicity of Democrat-funded, felony-prosecuted ACORN, brought about this total collapse by handing out mortgage loans to people they knew couldn’t afford them. Not George Bush. Not the Republican Party – but the Democratic Party was solely responsible for what happened.
The insane loans in question were dubbed “no docs” meaning no documentation: no credit checks, no down payments and no job history checks. They were given out like candy not for financial reasons but for political reasons. I have made that point over and over.
But now, finally, someone else is saying the same thing: that these bad loans – trillions of dollars worth of them – is the root cause of all our economic trouble. THEY are what brought our economy to a crushing halt. And this time the Democratic Party is going to be hard pressed to argue with the guy who is saying it because he is truly one of their stars. He is the guy behind the guy on the stage, the guy who sponsors the ACLU and Moveon.org, and other liberal causes: billionaire leftist financier: George Soros. The guy who slept in the Clinton White House time after time until he broke with the Clintons calling them pathological liars – and switched to Barack Obama. This is what Mr. Soros had to say today:
“For more than a year, the United States has been crippled by a recession that was triggered by a housing market downturn. Last summer, financial institutions with exposures to securities backed by bad mortgages began to buckle.” George Soros, January 27, 2009
That’s what happened. Investors bought these Fannie May guaranteed mortgage packages thinking they were good as ever, not told that Fannie had changed the rules to accommodate subprime borrowers. The rest is history.
And the suckers went to the polls like sheet, and put these guys back in office for four more years. Wow.
.
Now back to the original article.
Come on guys, let’s get serious. You are all supposed to be smart people, so when are you going to start acting like it? When are you going to learn that the most charismatic speakers are also the best “con artists’. What is it we say, “Talk is cheap”? Well, it is. There is often a huge difference between what people say and what they do. I recommend a little caution here. Let’s take a deep breath and see what transpires with our new President. Messianic adoration belongs in Church not in politics. It tends to blind one to reality.
In the recent election, the Democratic Party had ‘talking points’ that they used on you every single day during the election and many of you sucked them up hook, line, and sinker. For example: who do you think caused this financial meltdown? George Bush? Who caused the economic downturn? “George Bush?. What single event is most responsible for our current problems? “The war in Iraq?”. And so it goes. They sold it and you bought it and now, the Democratic Party owns the US government, lock, stock and barrel (which is to say the Presidency, The US Senate and the US House of Representatives).
You may be sorry about that.
What you never heard was that just buying foreign oil cost us six times more every month than the war in Iraq. And why did we have to buy so much foreign oil? Because the Democrats refused to allow us to drill for the oil we have here in America. Nor did you hear much about the real reason we are in this financial turmoil. Democratic politicians blamed it all on Bush. In fact, they blamed everything in the world on Bush. And what they didn’t blame on Bush, they blamed on those greedy CEO’s, some Republican and some Democrats, that took millions from failing corporations.
So let’s take a moment to talk about those selfish and greedy CEO’s. It has been my experience that selfish and greedy people exist at every level of business, sports, entertainment and/or politics. They get by in good times and cause a lot of trouble in bad times. If they are corporate CEO’s, the often rob their corporations blind. But if the shareholders are making money they don’t seem to care.
These corporations are or have always been private enterprise. So the money they are getting (or stealing if you prefer) is the shareholders money and if it’s okay with the shareholders, I guess it’s okay with me. Of course, I don’t approve of greed but it is one of the original seven deadly sins and no put me in charge of the world.
Where this becomes a problem is when the CEO’s are getting all this money for piloting their corporations into the dirt. Still in all, they are private companies and it it only affects their own shareholders and if the shareholders don’t care, than I can’t see where I should care. As I said, I am not in charge of the world.
Unless and until our politicians decided out of the goodness of their hearts, to give OUR money to those Corporations – billion of dollars in fact. Then it does become my business – and yours as well. I still don’t know why we decided to do this but since we did, the least we could do is demand those CEO’s who needed this money for their corporations, return part of those millions they took while their ship was sinking. Then I think I’d want those millions back and I might even sue to get it back. And sure, those guys were looking after Number One – and that’s greed with a capital “G”.
Nit having said that, I don’t want to confuse this type local greed which affects a limited number of people in a few corporations with the stupidity in congress that recently has affected the entire world. The one bit of foolishness is much more serious than the other. And “the other” is trying like hell to focus the blame on “the one”. But that is putting the tail in the front of the dog.
CEO’s didn’t create this economic mess – not the Republican CEO’s and not the Democratic CEO’s (like Jim Johnson and Franklin Raines to name a few Democrats that walked away with millions. Not, this mess belongs firmly In the laps of the Democratic politicians that ruined our economy by forcing lenders to make bad mortgage loans to people who could never hope to repay them. That is the root cause of this disaster made worse of course by greed, selfishness and stupidity on the part of a lot of people. But the root is the root so let’s concentrate on the root. Who and what caused this mess and why? We can sue the CEO’s later.
Fannie Mae and Freddie Mac are quasi-governmental agencies that buy mortgages from banks and other lenders so those banks and lenders can get cash to make more loans. That how the system works and that’s why these agencies were created. Fannie buys the mortgages from the lenders and then packages them and sells them to investors as long term investments. That’s what they are talking about when they say “mortgage backed securities” As long as the lenders follow Fannie Mae guidelines for making the loans, Fannie will buy them. Because of this tight control of loan criteria, securities backed by Fannie Mae home mortgages have long been considered a fairly safe investment.
Fannie’s guidelines historically have affected things like down payments, credit histories, work histories and the ratio of debt to mortgage payments. In order to sell their paper to Fannie, lenders had to follow the guidelines. Fannie Mae would then package these loans and sell them to investors who had long before developed trust in Fannie’s products.
But then, something unusual happened, something not shared with the general investment public. Fannie Mae loosened its guidelines. First, Clinton Democrats rewrote the CRA, the Community Reassessment Act. This was done in Bill Clinton’s words with a good heart to permit more minorities to qualify to buy their own homes – homes they could never get under existing guidelines. He made no claim to its wisdom.
Next, Fannie Mae changed its guidelines concerning down payments, work history, and credit worthiness. All were loosened specifically to make more home loans available to minorities.
Lenders – assured that Fannie Mae would buy their paper – began to issue home mortgages in greater and greater numbers to buyers who barely qualified even under the extended guidelines. In keeping with its promise, Fannie Mae then bought those mortgages from the lenders, re-packaged them, and resold them to investors as they had been doing for years. The only thing that was different was that these “subprimes” were much riskier than investors knew.
Still, the “subprime mortgages” were earning a high-risk return and they were sold by Fannie Mae, and that made them “hot” investment properties around the world and so they found a ready market. Every lender wanted to make these loans, the government wanted them to make these loans, investors wanted to hold these loans and since the borrowers were also happy, that made everyone happy. It looked like a universally quid pro quo arrangement and the loans were packaged into derivatives and sold far and wide with few knowing that Fannie Mae had changed the guidelines under which these loans had been granted.
Before I proceed, let’s name the people in congress who have the principle responsibility for overseeing the Nation’s banking industry and these kinds of affairs because they are the culprits in this sad ordeal: In the US Senate, it is “The Senate Banking Committee” chaired by Senator Chris Dodd (D-CT). In the House, it is “The House Banking Committee” chaired by Representative Barney Frank (D-MA).
Running Fannie Mae during the Clinton years and into the Bush years were two Democrats: Jim Johnson who served in the Obama campaign and Franklin Raines. Both men retired with handsome ‘golden parachutes’ despite the Obama rhetoric about the practice.
Under the new relaxed Fannie Mae “guidelines”, plus inner city pressures from ACORN backed by Senator Dodd and other Democrats, lenders made trillions of dollars worth of these questionable mortgage loans which Fannie then bought and resold to the aforesaid worldwide investors.
For a little while, nothing happened but then as the economy began to slow down these “no-doc” homeowners began to default. They had to, there was no margin for error in their loans. Anyone with half a brain should have known it was just a matter of time before this happened but these Congressional Democrats apparently didn’t have half a brain and so they didn’t They continued to push their ill-fated program.
Now I am no financial expert so while I can tell you about what happened next, you would need an expert to describe in detail why it happened. Allt I can give you is enough information so that you will generally understand how this root problem spread not only throughout our own financial community but also through financial communities around the world. But it’s a little like the ‘blind leading the blind’.
It’s an old truism that people with money look for places to invest it and that a favorite investment has long been mortgage backed securities, preferably securities backed by Fannie Mae mortgages. Strangely, these mortgages are not sold as units as you might expect. Instead they are “sliced up” and spread over a number of ‘derivatives”, i.e. separate investment packages. I assume this wais done to spread any risk across a large number of investors but to me it also make it almost impossible to really know what you are doing. Just imagine a group of people buying pieces of all the mortgages in your neighborhood with no one owning all of any one mortgage. It seems an over-reach to me.
Nevertheless, that’s how it’s done. So, the sub-prime mortgages were “sliced and diced” and their pieces spread over millions of derivatives which often were repackaged and resold into millions more. Because of this, the bad money acted like a virus soon infecting half the world.
And all because of a political decision made for the financial community by politicians who were acting under a very strange set of accounting principles no one else ever heard of. And behind it were Democrats Reid, Schummer, Dodd, Pelosi, Frank, Johnson and Raines. Call them “the gang of seven”. Yet has any one of them had to stand up and explain their actions? No, of course not. That’s because they are Democrats and the American public is not terribly bright. The put the fox back into the henhouse.
(Today, in an attempt to shift blame from themselves, Democrats call these lending agencies ‘predatory lenders’ because they pushed these higher interest loans but in a capitalistic society who wouldn’t take the investment that brought in the best return? All guaranteed by Fannie Mae? Any one of us would. None of this could have ever happened had it not been for ACORN and the “gang of seven”.
When the economy slowed down, it landed squarely in the laps of those poor people who really should never have been given these mortgages in the first place – mostly minorities. They quickly began to miss payments and soon they were in default. As that happened, home value declines and they were then upside down in their homes. That means their mortgage balances were higher than the market value of their homes. So many of them just walked away. After all, what did they have to lose? The had nothing invested in the first place.
With that, derivatives around the world began to lose tons of money and investors panicked. The more the sub-primes faltered the more the panic spread. And because the subprimes had been cut up and divested around the world, the losses spread like wildfire. Even foreign banks that had purchased derivatives on the assumption Fannie Mae loans were good loans now began to lose money. And who did they blame: they blamed the US government that had deluded them by selling them bad loans. By changing the lending criteria for mortgages without advising them of the danger of these new mortgages, Fannie Mae had all but defrauded them.
And who were the geniuses behind this? I told you, all Democrats. Bill Clinton, Harry Reid, Nancy Pelosi, Jim Johnson, Chris Dodd, Chuck Schummer, Franklin Raines and Barney Frank.
Didn’t anyone see the danger that was brewing in all of this? Well yes, someone did. George W. Bush did. He saw it and he tried to get legislation passed in 2004 to stop it but he was voted down by the Democrats. Then in 2005, John McCain tried to do something about it and he was all but called a racist by Democrats because he was trying to prevent minorities from owning their own.
When you hear that this mess was caused by Republicans or by Wall Street or greedy CEO’s and all of that – take it with a grain of sale. It’s not true. Certainly investors jumped on the gravy train but why not? That’s what you expect them to do. The higher interest rate was bait and everyone wanted to make more money. So they jumped on board. But, the people who were responsible are the people now pointing fingers at everyone else, the Democrats in Congress beginning with the two men who are guilty of a conflict of interest: Senator Chris Dodd and Representative Barney Frank.
These two abrogated their congressional responsibility to oversee the banking industry and Fannie Mae and Freddie Mac. So it should come as no surprise that,
during the election campaign Fannie gave the most money to Barack Obama, next largest amount to Senator Chris Dodd, and next to Representative Barney Frank. If that isn’t a conflict of interest, I don’t know what is.
I think all these guys plus ACORN should be under investigation for criminal fraud. But they won’t be. We have a Democratic President now and a Democratic congress and they already have enough problems with ethics.
By the way, organizations have a lot of ways to hide political contributions. The amount given to these guys by Fannie Mae is listed and it’s not a huge amount of money. But if you take into account the money donated “by the employees of Fannie Mae”, you find out Obama got damn near a million dollars, Dodd got about eight hundred thousands dollars and Frank over half a million dollars. What a strange coincidence that these ‘friends’ happened to get all that money.
In addition to campaign contributions, Senator Dodd also got a sweetheart home loan from Countrywide. With all this, how unbelievable is it that the American people should turn around and vote these same guys back into office to try to straighten out the very mess they created. You know what bothers me? I am not sure these guys are bright enough. If they aren’t, America has shot itself in the foot, for sure. Americans don’t understand what they have and how hard it was to get it and how easy it will be to lose it. I am afraid they will learn but it may be too late.
So the reality is that investors and investing houses around the world were cheated by our Democratic congress and we had to make that good or foreign governments would have nothing to do with us ever again. We had to make those bad investments good and I agree. Our paper was purchased in good faith and had to be honored. So some of that trillion dollars that has disappeared and which is not being explained, I assume went to foreign banks and investment houses that were holding our toxic loans.
And that’s the truth. For a couple of years, it seemed to be working out okay but then when the economy began to slip, all this bad paper hit the fan and the financial community came down like a house of cards. All made possible by of a handful of Democratic congressmen who whether truly motivated by greed or altruism or a combination of both, have almost destroyed America. And still they hold their jobs. They should be in jail. But as long as the American public sucks up the political pap, they don’t have to worry. Their jobs are recession proof.
I have written an article with suggestions on what we might do now. That article is found on this site. Some of the suggestions might not be very good but some might be. All we can do is offer them up.
Now let’s take a look at another problem: jobs. We are losing jobs. Why? Well, first of all, far too many Americans buy far too many products made overseas. Whoever thought this was a good idea wasn’t too bright. This global economy works just as long as there is some parity in wages among certain classes of workers – particularly among manufacturing workers. If there is parity in wages, products compete on a more level playing field. But if one country will supply a degreed employee fort $25,000.00 while American degreed employees cost $75,000.00, where do think that job is going to go?
People need to have jobs, earn decent salaries, and feel confident they are going to keep those jobs in order to feeling confident about buying things. Today that feeling doesn’t exist. So you can throw as much money as you want at the problem and you won’t accomplish much. You need to solve the basic problem: how do we keep American manufacturing jobs here in America. Here’s my suggestion: (1) drop all corporate taxes for companies that employ American workers tying the reduction to the percentage of jobs in the company filled by Americans in America. (2) move health care out of the business community and fund it otherwise perhaps with a national sales tax. (3) Finally, I would eliminate the capital gains tax and cut back on government spending In no case, would I raise taxes.
America’s problem is the people at the bottom of the economic ladder. They need jobs and those jobs are increasingly being lost. One of the major employers of this segment of the population is retail sales. But retail is suffering. And now there is a new problem i.e. Internet shopping.
On line shopping takes people out of local stores. This destroys neighbors and neighborhoods because it lowers local sales and hence local employment. Maybe the guys selling from a warehouse can sell cheaper because they don’t have to have those employees, they don’t have to rent those stores, and they don’t have to worry about contributing to the local neighborhood watch – but how does that help any of us and how does it help America?
Where do YOU live? When you go ‘into town’, what do you want to see? A save and active community? A place where you can shop, interact with your neighbors, get out of the house for half a day? Or would you rather never go downtown, never go to the strip mall, never go shopping anyplace other than on your computer? And when you do that, what happens to all the people in your town who might have had jobs in those stores that no longer exist?
Now I know about the “free market” and “protectionism” and why they don’t work. But the other side of the coin is this: do you want a healthy community in which to live or don’t you? Do you want local jobs for your kids, your neighbors, or even for yourself – or don’t you? Let’s get real. Nothing is easy and new things are not always better than old things.
I think the Federal and State governments need a new department: “The Department of Local Enterprise” devoted to re-energizing our local towns and down town city areas. I also think we need to tax online sales heavily enough to actually discourage them. Yes, I said discourage them. They have an unfair competitive advantage that is going to destroy us. We have to thwart that.
Internet marketing to your local store, is the same as foreign labor is to our American workers. The Internet store is cheaper just as the worker in Korea or China may be cheaper. But so what?
Look at it like this. Suppose someone invented a machine in one industry that immediately could do the work that is being done today by 5,000 people and the machine sells for $1,000.00. Let’s assume 5 million people work in this industry.
For the cost of 1,000 machines (one million dollars) you can put five million people out of work and save your company maybe fifteen billion dollars. Good, right?
Well, good for you but bad for your country and bad for those five million people that now are unemployed. Someone is now going to have to take care of them. They will need unemployment compensation and health care and in time, welfare of some sort.
They will need help with their mortgage and car payments. Tons of businesses are going to suffer, some will even fail, because these people no longer have the disposable income they once had. In fact, everyone suffers except the guy who owns the company.
Is this progress? Is this good for a nation?
Society has many functions and many purposes. But to be viable a society must provide jobs for its citizens. “Idle hands are the Devil’s workshop” and if you have five million people walking the streets joining the other fifteen million that lost their jobs in other areas, you are breeding violence. And for what? That one guy or one company can get richer? There has to be some social responsibility in conducting business since we all share this same planet.
So what I am driving at is this: you need to protect your country and its citizens and you do that by providing gainful employment for them. And creating a community for them where they can be happy and secure. And that’s the job of government. Yes I favor free markets and capitalism, but not at the expense of the folks at the bottom of the economic ladder. We have to have an acceptable floor for everyone before we lift the ceiling.
I would therefore, not license that machine. I know this is a dangerous position because, it takes away the profit motive from some of our most energetic and innovative people, but making money while important is not the only thing that is important. To my way of thinking, I don’t care that much what the ceiling is but I do care where the floor is. Everyone needs to have enough to live and be warm and well fed and after that, then everyone else can make all they can make.
So where the Internet is concerned, I would impose surtax on Internet sales to make their price equitable with those at neighborhood stores. Yes I know the arguments – I can hear them now – this will stifle grown and ingenuity and progress. Well maybe, but there are tradeoffs. Not everything new is better than everything old. You are allowed to pick and choose. I choose to keep people employed, save our local communities, help people by giving them opportunities to better their economic condition without giving them too many handouts which cripple ambition.
We need to think of the people first. Take this matter of cheaper foreign products flooding America. We are buying them to save money even though that puts our neighbor out of a job. That’s not right. We want competition because that usually produces better products but what good are better products if half our country can’t afford to buy them because they lost their jobs?
I am well aware of how difficult this problem is. Tariffs don’t work. Protectionism is fraught with all kinds of perils. So what can we do to right this imbalance? In America, workers need higher salaries to live than do workers in many other countries. So our labor costs are going to be higher. So how can American companies compete? We have to figure out something.
Throwing good money after bad is not the way. Where companies come begging for Federal (taxpayer) dollars, they must come with a plan showing how they can do better with our help. No free money without oversight. Helping to make things better is fine. Trying to save dying companies, dying enterprises, or personal fortunes is not fine. Neither is giving homes to people that they can’t afford.
It’s time we all got a little smarter and a little more realistic. Start speaking up. Make you ideas known. And forget political correctness. The only correctness is that what you say be the truth. In that case, don’t worry about who doesn’t like it. Letting the loudmouth’s rule the world is a sure formula for failure.
Last week, Speaker of the House Nancy Pelosi said she wanted to put a Windfall Tax on all stock market profits (including Retirement fund, 401K and Mutual Funds! Alas , it is true – all to help the 12 Million Illegal Immigrants and other unemployed Minorities!
This woman is frightening. Here is what she said: “We need to work toward the goal of equalizing income, (didn’t Marx say something like this), in our country and at the same time limiting the amount the rich can invest.”
When asked how these new tax dollars would be spent, she replied: ?We need to raise the standard of living of our poor, unemployed and minorities. For example, we have an estimated 12 million illegal immigrants in our country who need our help along with millions of unemployed minorities. Stock market windfall profit taxes could go a long way to guarantee these people the standard of living they would like to have as ‘Americans”. (
If this wasn’t so serious it would be funny. Pelosi wants to tax your IRA or your 401 retirement plan so she can give it away to the poor including those illegal immigrants who want an American standard of living they can’t earn for themselves. Is this woman Robin Hood? She wants to take from the producers and give to the-producers? Does she think this is a way to encourage them to go out and work for a better life? If she does, she has lost touch with reality.
Yet we do have to do something for all our citizens to guarantee them a minimum standard of living. Perhaps raising the minimum wage will help. I know all the arguments but they are mostly just arguments. We have raised it before with no dire consequences. Let’s do it again and make the raise meaningful.
After all the more then earn, the better off the rest of us will be.
But in the final analysis, nothing is easy.
Joey
Articles in Joey’s Comments and Controversy are the express opinions of Joey and not Boomeryearbook. However, while non-members can read articles on boomeryearbook.com only members can make comments. Joey’s section is called Joey’s Comments and Controversy for a good reason. In Joey’s words, “I hope I’ve given you food for thought and you will join boomeryearbook and respond”.
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