Linkmeister

Lately, every time I hear the word "loan", I think of that line in "The Moon is a Harsh Mistress" where Manny tells the creation myth of Hong Kong Luna: a couple of merchants set up shop and got rich selling rocks to each other. But what, I ask myself, happened when they noticed that they didn't need to buy them, they could pick up as many as they wanted from the surface? Answer: they could sell them to the poor schmucks who weren't merchants.

puh-lease. Franklin Raines makes Ken Lay look like an amateur. And who repealed the Glass-Steagall Act? When was it? Who's been running the Fed since then? I beg you to investigate the history further.

For some info:
http://www.bergenjerseyforeclosures.com/blog/info/entry/repeal_of_glass_steagall_act

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

If you REALLTY want to investigate check out the almost tenfold difference in major media outlet coverage of Enron over Fannie Mae, which people of all political stripes had been warning about for at least 10 years.

Who HAS been running the Fed? Why, Alan Greenspan and Ben Bernanke, neither of them Democratic-policy friendly people.

As to Raines, he's no way as corrupt as Bush Pioneer Ken Lay was.

And McCain campaign manager Rick Davis is and has been a lobbyist for Fannie Mae for years.

Also, neither Fannie Mae nor Freddie Mac were/are in the mortgage origination business. That was done by irresponsible and greedy bankers and brokers.

Hey, would you rather I not continue?

I mean, I don't really want to come in and aggravate you. And for all I know you want it to remain one sided. I came here from DT, and decided to look around as I do from time to time, to see what you have to say. Sometimes it hits me like a bait and switch. Ya know?

When I think about it, what's the point if you can't have a dialouge about it and come to some points of agreement (and disagreement)?

I'm perfectly willing to discuss/argue; I enjoy it. But equating Franklin Raines of FNMA, who has not been convicted of anything, to Ken Lay of Enron, who was convicted of securities fraud and is generally accepted as one of the perpetrators of what was then the biggest business fraud in American history is just not accurate.

Greenspan was Fed chief until Bush's second term, retiring in 2006; he was succeeded by Bernanke, who still holds the job. So I'm unclear on what point bringing that job's holders into the discussion you're trying to make.

As to Glass-Steagal's repeal, Clinton was faced with a veto-proof vote on that bill; he didn't have much choice.

One thing about Krugman is that he doesn't seem to understand how we really got into this crisis (or he is glossing it over for whatever reasons). I don't know if that's where you start with your beliefs, but as he states "It all starts with the bursting of the housing bubble." sept 21. But that's not really where it starts.

So where does it really start? I supposed with the first passage of the Glass-Steagal Act. See that act was designed to manage the capital backing mortgages. One can argue the merits of this, but at the time I think it was expedient. The real issues started in the 1968, and later in 70 where the primary and secondary markets got blurred AND you had a quasi-govt agency gaining (GSE) advantages not available in a truly free market. If you think a minute about how these agencies were created to manage liquidity in the lending industry... essentially freeing up capital by underwriting the risk... you can understand how this has wider consequences in the rest of the financial world. Go forward to CRA in 77 with Carter (and again you could put any name/party here but your blind if you don't see that for the most part everybody just trundled along on this). And we get to the lack of guidelines in conjunction with a mission of lending to the "entire community". (So far we've come a LONG way down a rosey road of good intentions which no party and no liberal/conservative can claim they weren't marching along).
Now we get to 1992 and the REAL beginning:
the Federal Housing Enterprises Financial Safety and Soundness Act. This essentially amounted to mandated bad loans with fuzzy guidelines and confused oversight. The rosey road got wider. Newly created Freddie Mac started it's "creep". Greater risks were ratched every year to meet mandated numbers. The people in charge committed fraud and created a culture of deceipt to meet these numbers. Franlin Raines participated in just the kind of shell game previously prevented by Glass-Steagall, one which is in fact remarkably similar to that committed by Ken Lay. They both shifted losses so those other than executives would take the hit. They both mistated earnings that were hidden by flawed (fraudulent) accounting practices. The only real difference is that Lay lied and was prosecuted (as he should be) and that Raines didn't lie to OFHEO and "held himself accountable" by retiring and agreeing to a cozy "settlement". If you're into not letting guys off, you might ask yourself why he gets a free pass. (I'd guess that the people in the know wanted to brush all this under the carpet because they knew THEN that we were in real trouble.)

At that point, the estimated $9 billion in fraudulent earnings and the subsequent write downs began the current dawn of reality. Unregulated loans to risk intense borrowers is a bad idea.

http://clerk.house.gov/evs/1992/roll366.xml

CRA myth debunked.

Glass-Steagal was designed to separate investment banking from commercial (retail depository) banking. There was no mention of mortgages in it.

I pretty much disagree with your interpretation of history, but I don't have time to work up an essay before going to the dentist this morning (honestly, I'd rather work on the essay, but there you go). More later.

Your link doesn't work.

Hope your dentist appt goes well, I'm there in a week or so. :-)

That link is meaningless anyway, it's just the roll call on 366.

YOUR link does work however, and has good hard stuff in it. Some of which is news to me. And I guess I will have to look at the numbers. Still, how did we get the $5-9 billion overestimates from Raines? Are these just non- CRA loans that weren't covered that Fannie and Freddie willingly choked down?

I'd like to see those same numbers for WaMu.

My larger point would be that CRA and F&F create the illusion of safety. F&F gather up billions of dollars in mortgages and bundles them up in "securities", and also has the ability to create their own bonds-- this appears to me to be just what the Glass-Steagal was preventing. And I'm ready to be enlighted if not. Combine this with Greenspans free-weilding capital spigot and there's alot of impetus for other lenders to believe in the fantasy.

Fannie Mae's charter says "the company [should] increase liquidity in the residential mortgage finance market, promote access to mortgage credit throughout the country and provide assistance to the secondary market for residential mortgages."

So it was supposed to buy up mortgages originated by banks and make a market for them (essentially by bundling them into tranches of bonds backed by the mortgage payments of thousands of homeowners). I'm not sure when or if it went beyond that goal; I'll have to look it up.

Dentist was just a cleaning and putting permanent cement on a six-month-old crown. 1 1/4 hours in the chair, and that cement tastes horrid.