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Gerry Clinchy
07-16-2010, 07:49 AM
NY Times
http://www.nytimes.com/roomfordebate/2010/7/15/who-won-big-in-the-financial-bill/the-finance-bill-gives-auto-dealers-a-pass

I guess I'm a bit surprised that the NY Times is spending this much space on what is wrong with the bill that Congress passed ... but lauded by the Administration as being such a good step in financial reform.

cotts135
07-17-2010, 06:26 AM
NY Times
http://www.nytimes.com/roomfordebate/2010/7/15/who-won-big-in-the-financial-bill/the-finance-bill-gives-auto-dealers-a-pass

I guess I'm a bit surprised that the NY Times is spending this much space on what is wrong with the bill that Congress passed ... but lauded by the Administration as being such a good step in financial reform.


You have to scratch your head sometimes, don't you.

The Financial Reform bill falls short in at least three critical areas. Transparency especially when it comes to derivatives, separating the cops from the crooks, and addressing too big to fail.

YardleyLabs
07-17-2010, 06:56 AM
The consistent theme of the NY Times stories is that the reform package does not go far enough. The consistent criticism from Republicans is that it goes too far. Ultimately, the contents of the bill were dictated by what compromise would produce the 60 vote majority needed to override a promised Republican filibuster.

Gerry Clinchy
07-17-2010, 09:06 AM
The Financial Reform bill falls short in at least three critical areas. Transparency especially when it comes to derivatives, separating the cops from the crooks, and addressing too big to fail.

Car financing by dealers has always been a "zoo" ... and this bill doesn't help that, according to the article.

Jeff, my sense, from the media coverage, is that the Rs were also opposed to the flaws in the bill, recognizing that the nasty derivatives thing & other stuff was not really reformed much. But I will yield that such could be my "perception". I'd venture that there were also Dems who were not in favor of "teeth" in the reform bill.

Franco
07-17-2010, 02:36 PM
I wouldn't expect anyhting less from the two idiots that wrote the 2,000 page mess, Chris Dodd and Barney Frank!

Not only does it fail to address To Big To Fail, the bill actually sets up the next financial meltdown.

Nor does it address one of the biggest culprits in the last mess, Fannie and Freddie. They get a pass to continue to underwrite bad loans and pass the losses on to the tax payer.

This shame of a bill creates a new burearacy costing tax payers billions and the gooberment will now become even bigger.

Buzz
07-17-2010, 09:58 PM
I wouldn't expect anyhting less from the two idiots that wrote the 2,000 page mess, Chris Dodd and Barney Frank!

Not only does it fail to address To Big To Fail, the bill actually sets up the next financial meltdown.

Nor does it address one of the biggest culprits in the last mess, Fannie and Freddie. They get a pass to continue to underwrite bad loans and pass the losses on to the tax payer.

This shame of a bill creates a new burearacy costing tax payers billions and the gooberment will now become even bigger.


I didn't know that Fannie and Freddie were in the business of underwriting loans. I thought they securitized mortgages that banks underwrite, providing more capital for the banks to use in creating more mortgages.

http://www.cjr.org/the_audit/wall_street_sank_freddie_and_f.php




Wall Street Sank Freddie and Fannie

Reading all this, one gets the impression that those politically protected mortgage buyers and fee machines caused the global credit crisis.

They didn’t.

The fact is: Wall Street sank Freddie and Fannie, not the other way around.

It was only a few years ago, during the heyday of the housing bubble, that these government-sponsored enterprises were elbowed aside by Wall Street, which was busy furiously shoveling money to the Countrywides, New Centurys, Ameriquests, and other bucket shops that provided the rotten mortgages that were the raw material Wall Street repackaged and foisted onto return-hungry global bond markets.

This Credit Suisse report (from March 2007 and eerily prescient) reminds us that the government sponsored entities’ share of the overall new mortgage market had fallen to 42 percent by the end of 2006 before shooting up to 76 percent at the end of 2007 (on their way toward 90 percent now) as the market collapsed.

And that’s the overall market. As Paul Krugman points out, a “subprime borrower is basically someone whose credit wasn’t good enough to qualify for a Fannie- or Freddie-backed mortgage”. The subprime market&the really toxic stuff—was always dominated by Wall Street and Wall Street-backed lenders.

According to Bloomberg’s tally, bank write-offs from the subprime and credit calamity have now passed $500 billion.

Franco
07-17-2010, 10:26 PM
I didn't know that Fannie and Freddie were in the business of underwriting loans. I thought they securitized mortgages that banks underwrite, providing more capital for the banks to use in creating more mortgages.

Correct, they are in the business of backing bad martgages. What's the difference? Below, where it states "Government backed" it should be "tax payer backed".


In 1981 Fannie Mae issue its first mortgage passthrough and called it a mortgage-backed security.Ginnie Mae had guarenteed the first mortgage passthrough security of an approved lender in 1968 and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages.
In 1999, Fannie Mae came under pressure from the Clinton Administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977. Because of the increased ratio requirements, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers.

In 2000, because of a re-assessment of the housing market by Hud anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.
The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Muddthen President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "
In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s." "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".

On September 10, 2003, the Bush Administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae. The new agency would have the authority, which now rests with Congress, to set capital-reserve requirements for the company and to determine whether the company is adequately managing the risks of its portfolios. The New York Times reported that the plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac is broken. The Times also reported Democratic opposition to Bush's plan: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing".

Franco
07-17-2010, 10:35 PM
http://www.cjr.org/the_audit/wall_street_sank_freddie_and_f.php

You can't blame it all on Wall St. Sure Wall St packaged a bunch of trash and sold it to compaies like AIG. The big firms like Goldman Sachs were stealing legally since it was thier officials that started making the rules under Clinton. They also were the sspeculators that drove the price of oil to over $160 per barrel. A bunch of white collar crooks!

But that doesn't mean that Barney Frank who is in charge of overseeing Fannie and Freddie was doing his job. He didn't even know how much trouble they were in!

P S The $500 million fine Goldman Sachs was ordered to pay last week is a drop in the bucket compared to all the money they have stolen from tax payers, pension funds etc. They should be in jail but then again, they got to write the laws so they were stealing legally.

And, they are going to make billions in commissions from Cap and Tax!

cotts135
07-18-2010, 06:09 AM
You can't blame it all on Wall St. Sure Wall St packaged a bunch of trash and sold it to compaies like AIG. The big firms like Goldman Sachs were stealing legally since it was thier officials that started making the rules under Clinton. They also were the sspeculators that drove the price of oil to over $160 per barrel. A bunch of white collar crooks!

But that doesn't mean that Barney Frank who is in charge of overseeing Fannie and Freddie was doing his job. He didn't even know how much trouble they were in!

P S The $500 million fine Goldman Sachs was ordered to pay last week is a drop in the bucket compared to all the money they have stolen from tax payers, pension funds etc. They should be in jail but then again, they got to write the laws so they were stealing legally.

And, they are going to make billions in commissions from Cap and Tax!

A lot of blame to pass around here. What is important though is for people to educate themselves about this and then demand from there legislators that they fix it and fix it right. Time to tell them that we are sick and tired of 2000 pg bills that seem to fix the problems but when looked at further you find just a few paragraphs that include carve outs and exceptions that essentially make the bill meaningless.

YardleyLabs
07-18-2010, 07:08 AM
The collapse of the mortgage market arose primarily (not solely) out of Wall Street dong what it always does: maximize short term profits in the most creative and lucrative ways, while not worrying at all about the intermediate and long range future. The balloon in the mortgage market began around 2002-2003 and the collapse began in 2006. The entire process took less than four years, and in another decade the effects will probably have been overcome fully. There are aspects of the financial system infrastructure that made that collapse possible. However, those were simply the tools that were used. The notion of securitized mortgages was a primary reason for launching Fannie and Freddie. When mortgages were issued only by savings banks, there was always a limited amount of capital available. Few banks issued mortgages outside of their home districts because they retained the mortgage servicing responsibility and the risk. They generally only felt comfortable doing that in the markets with which they were most familiar.

Fannie and Freddie essentially gave banks a way to "lay off" the risk. However, that model only really took hold with the development of marketable securities backed by mortgages -- what were then (early 1980's) called collateralized mortgage backed securities or CMO's. These securities, for the first time, allowed mortgages to be packaged based on risk and maturity so that investors could buy a piece of the pool. Once that was done, the links between capital, mortgage issuance, mortgage servicing, and investment return began to break down. There was a radical, and initially very positive, impact on the market. Mortgage interest rates declined because more investment capital was available under the new model and because pooled risk management was more predictable than risk management of individual mortgages. Entire new industries were created for originating and servicing mortgages. The players in these markets provided critical risk management services but had no share in the outcome of their decisions. Instead, they were paid on volume, giving them major incentives to ignore warning signs. In fact, their profitability was based on their ability to attract borrowers and then to process the mortgages at minimum cost, with no liability for taking on bad risks.

In its original form, the collateralized mortgage markets were still relatively staid, with low capital risk and low financial returns. When lots of alternative investments were available, the government share of the capital side of mortgages would increase. When returns on alternative investments declined, more private money would enter the market and the government share would go down. Government actually restricted itself to some of the less risky ends of the market while investors, seeking larger returns, went aster the more risky ends.

In the early 2000's, a perfect storm began to develop. Aggressive deregulation had opened the door to more and more complicated investment instruments. Among other things, this made it possible to split up mortgage pools and sell different shares of the risk and return to different investors. Thus for a single pool, an investor could buy first claim on the revenue stream at one price, or buy last claim on the revenue stream at a much lower price with the potential for a much higher return. While the government backed companies -- Freddie and Fannie -- restricted their involvement to the first dollar investments, private speculators obtained much greater returns by focusing on the last dollar investments. They were able to mitigate the risks associated with this strategy by laying off some of the risk using another new tool -- credit risk default insurance that was itself collateralized. The second big factor was the massive increase in investment capital resulting from lower interest rates and major tax cuts high income individuals. This led both to increased demand for bigger and more expensive houses and more and more money that needed to be invested.

Virtually every mortgage in the country was refinanced over a period of a couple of years to take advantage of lower rates. Consumers found it easy to convert their home equity into cash to meet current consumption demands and they did. A lot of that new money went into investments and the prime targets was the hottest investment available -- real estate. The problem is that the market was inherently limited. The housing market simply didn't need the number of houses being built. The driving forces -- primarily the easy availability of credit at low prices -- was also inherently limited since credit ends when collateral dries up. As with almost all balloons, once a leak forms, the collapse is quick. Housing prices began to stabilize in a market that demanded that they go up rapidly. Inventory began to grow along with delinquencies. The rest is history.

This story is actually not very complicated. The loans weren't bad because of low income home purchasers. They were never that big a part of the market. The loans were bad because all the built in controls that would normally help guarantee the quality of loans were removed. Bad loans were being issued to borrowers at every possible income level. In fact, the greatest number of defaults today are in high end homes owned by affluent buyers. The reality is that investment instruments that buffer the investor from risk are illusory. The risk is still there and the buffer encourages investors to more risky behavior.

People now sit around and wistfully compare our economic condition today to that of 2005 at the height of the market and wonder when we will get back. The answer, unfortunately, is that we won't get back there until just before the next collapse. The growth experienced because of the housing boom was entirely an illusion. There was no value behind the curtain. The market will remain depressed until all of the resulting losses have been fully absorbed and natural demand eventually catches up with the excess inventory that was constructed or those wonderful new buildings are simply allowed to fall down. We are not there yet and I estimate that we will not be for at least another 4-6 years.

Gerry Clinchy
07-18-2010, 04:01 PM
The market will remain depressed until all of the resulting losses have been fully absorbed and natural demand eventually catches up with the excess inventory that was constructed or those wonderful new buildings are simply allowed to fall down.

I did read of a new development, partially finished and unsalable that was bulldozed. Sorry, I can't remember the source. Get tons of email news on real estate from multiple sources & impossible to save it all.