How You Know When There's a Problem

There's a fairly famous story from the era of the Great Depression wherein Joseph P. Kennedy pulled his money from the stock market just prior to the Crash. He said that when his shoe-shine boy gave him stock tips, that was the signal that the market was wildly overinflated and it was time to get out.

Personally, I've known there was a problem in the mortgage industry ever since every fifth radio commercial was an advertisement for a 0% down, interest-only adjustable rate mortgage at a low, low, low APR! Anybody could qualify!

That was about four years ago, here in Tucson. Had I lived in California (perish the thought!) it would have been a lot sooner.

I ran across a transcript from radio host Mark Levin's Sept. 19 show that is good enough to archive:

September 2008 will be remembered as the time when Socialism really, really took hold in this country.

Unfortunately these politicians are running for the hills because they do not want to take responsibility for what is going on, and I mean BIG TIME.

So I want to tell you a little story about your government; I want to tell you a little story about how it works and doesn't work. I want to tell you a little story about how things go on in the shadows in this country and the massive bureaucracies of this country that you don't know about, and yet they affect your lives every single day.

We have a massive Administrative State....and we have this massive bureaucracy, that's utterly unelected, and unaffected by what you want or what you believe. It's part of the Washington elite management system that controls so much of what goes on in this country.

...And I want to tell you a little bit about how the liberals in government whether they be elected or appointed, whether they be bureaucrats or politicians, how they work together and bring us to this point. And then tell YOU the problem is free markets, the problem is Capitalism, the problem is greed.

They lie.

The Community Reinvestment Act, or CRA - is a federal law that requires banks and thrifts to offer credit throughout their entire market area. And it prohibits them from NOT giving loans to poorer areas within the reach of their communities. They call this redlining. They call violations of this redlining.

The purpose of this Act is to provide credit, including home ownership opportunities to what they call "under-served populations" and commercial loans to small businesses.

The law was passed by Congress in 1977 under Carter as a result of national grassroots pressure from groups like ACORN (an ultra-Left wing criminal enterprise in my humble opinion) which brought pressure for affordable housing for the poor. It was opposed significantly and aggressively by the banking community. But they had no choice. It became law 31 years ago.

The law mandates that "each banking institution be evaluated to determine if it has met the credit needs of its entire community" - that is, if it has given loans to enough poor people, or people who can't really afford them.

And then that record is taken into account by the federal government when it considers an institution's application for mergers and acquisitions.

And so the law is enforced by the federal government and in 1995, as a result of interest from Bill Clinton's Administration - particularly Janet Reno and the Department of Housing and Urban Development, the implementing regulations for the law were strengthened by focusing the financial regulator's attention on institution's performance in helping to meet community credit needs.

So they really, really pushed them. They used the FORCE OF LAW to compel these private institutions to make bad loans.

These changes were very controversial.

...The Clinton Administration's regulatory revisions with an effective starting date of January 31 1995, were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low and moderate income borrowers for home loans. Clinton used to brag about this.

Part of the increase in home loans was due to increased efficiency in the genesis of lenders like Countrywide that DID NOT mitigate loan risk with savings deposits, which traditional banks do. They were using the new SUBPRIME AUTHORIZATION, of 1995. Are you listening to me? This is known as the secondary market for mortgage loans. The revisions in the law allowed the securitization of CRA loans containing subprime mortgages. In other words, they had to figure out how to give loans to people who do not qualify for the loans under traditional procedures. So they changed the procedures.

The loans were not capitalized. So you have No Down Payment loans, No Interest loans, Low Interest loans that turn into higher interest loans over time (ARMs), and on and on. They were trying to be creative in what they could do, and they HAD TO BE under the threat of losing business practices and activities as compelled by the Federal Government.

The Federal Government compelled this activity and compelled this behavior.

The first securitization of CRA loans, started in 1997 with Bear Stearns (remember them?)

Now in 2003, The Bush Administration recommended what the New York Slimes (Times) called "The most significant regulatory overhaul in the Housing Financial Industry since the Savings and Loan crisis a decade ago". This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans; Fannie Mae and Freddie Mac, under a wholly new agency created within the Department of Justice, which would give it more oversight power and more auditing power. It would require these two so-called "companies" to better capitalize their debt.

Even so, what remained was the implied guarantee that the American taxpayer, should anything go wrong, would back-up these loans.

But that legislation to strengthen these programs, to move the oversight to an independent separate agency WAS BLOCKED in 2003 by Congress. And it was blocked by the Democrats, because the Democrats were in bed with ACORN and these other "community activists grassroots groups", of whom Barrack The Hussein Obama is quite familiar.

These are the constituents of the Democrat party - that is these Left wing groups like ACORN.

(Barney) Frank (D-MA) was in bed with them; Chris Dodd (D-CT) was in bed with them; the Clinton Administration was in bed with them; and so they blocked the reforms the Bush Administration proposed in 2003.

Barney Frank said at the time "These two entities Fannie Mae and Freddie Mac, are NOT FACING ANY KIND OF FINANCIAL CRISIS. The more people exaggerate these problems...the more pressure there is on these companies, the less we will see in terms of affordable housing".

So basically, the Socialists FORCED the private sector to behave in ways the private sector didn't want to behave but was forced to behave under threat of law. That is to give loans to people who were bad risks.

The two government run companies; Fannie Mae and Freddie Mac, when the Bush Administration said in '03 "Look we got a problem here. They don't have enough capital, they're running wild over there. We don't have enough oversight and auditing activity. We want to break out that activity - make it independent so they can oversee it. Force them to capitalize against their loans better". They were BLOCKED.

Now I don't know about people who say we can't talk about party (blame) - We HAVE TO TALK ABOUT PARTY HERE because the only way you have accountability, and the only way you fix this situation, is to know WHO and WHAT is responsible, and what policies got us here!

Now these policies encouraged the development of the sub-prime debacle, through this CRA legislation, which forced banks to lend to uncreditworthy customers. Which they are now being criticized for having done. Before this debacle, while they are now attacking these huge financial institutions - they would praise them for all the uncreditworthy risky loans they were giving to 'certain' citizens (and non-citizens) in this country!

In 2003, the NY Slimes said of the Bush Administration's plan "The plan is an acknowledgment by the Administration that oversight of Fannie Mae and Freddie Mac, which together have issued more than 1.5 trillion in outstanding debt, is broken".

2003.

Former Treasury Secretary John Snowe from the Bush Administration, 2003 - "There is a general recognition, that the supervisory system for housing-related government-sponsored enterprise neither has the tools nor the stature, to deal effectively with the current size, complexity and importance of these enterprises."

Michael Oxley, Republican from Ohio, former House Finance Services Committee Chairman, he said: "The current regulator does not have the tools or the mandate to adequately regulate these enterprises. In recent months, we have seen the mismanagement and questionable accounting practices went largely unnoticed".

The Senate Republican Policy Committee, the Conservatives warned in 2003, that Fannie Mae and Freddie Mac threatened the U.S. economy and taxpayer "Although both firms seem to be performing well at the moment, it is far better for Congress to take pre-emptive action, instead of facing an enormously expensive corrective action after a destabilizing crisis strikes. Given how large these government companies have grown, and how much interest rate risk they retain, the risks posed by their current operations, should move Congress to increase their disclosure requirements, improve safety and soundness regulations, and examine how best to extricate the Federal Government from their operations. And through such steps, Congress could give regulators and investors a better sense of the risks that Fannie and Freddie's operations pose and reduce the likelihood of a bailout."

That was the Conservative Republican Policy Committee, Conservative Republican Senators.

What did the Democrats say? What did they say in 2003?

When the Bush Administration in 2003 was in fact, ringing the alarm bells, and did in-fact draft proposed legislation to address this, Republicans supported it and Democrats blocked it.

"These two entities Fannie Mae and Freddie Mac, are NOT FACING ANY KIND OF FINANCIAL CRISIS. The more people exaggerate these problems...the more pressure there is on these companies, the less we will see in terms of affordable housing". - Barney Frank, 2003 (D-MA)

He told the AP a few weeks later: "I don't think we face a crisis. I don't think we have an impending disaster."

In 2004 Frank said "I think Wall Street will get over it", referring to the possible collapse of Fannie Mae and Freddie Mac.

In 2005, the Republicans in Congress offered legislation to basically do what the Bush Administration had proposed two years earlier, and here's what the Democrat Minority Leader in the Senate Harry Reid had to say: "The legislation from the Senate Banking Committee passed today on a party-line vote by the Republican majority, includes measures that could cripple the ability of Fannie Mae and Freddie Mac to carry out their mission of expanding home ownership. While I favor approving oversight by our federal housing regulators, to ensure safety and soundness, we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process". That was UPI quoting Harry Reid in July '05.

This by the way is the same reason they won't address the other looming disasters like Social Security, Medicare and Medicaid. They just won't do it. Until we're on the brink.

Over, Mark. Over the brink.

As recently as August 16, 2007 - a little over a year ago - Schumer and Dodd, the Chairman of the Banking Committee, called on Fannie Mae and Freddie Mac regulators TO LIFT THE PORTFOLIO CAPS SO THEY COULD GIVE OUT MORE LOANS, to MORE people. They argued that allowing the two firms to buy more mortgages, and we're talking about these sub-prime mortgages, "at least temporarily" they said, "would inject much liquidity into the market and calm the financial markets."

That's what we're talking about.

In November 2006, Schumer in an Op-Ed in the Wall Street Journal with New York Mayor Michael Bloomberg: "With the benefit of hindsight, the Sarbanes-Oxley Act of 2002, which imposed a new regulatory framework on all public companies doing business in the U.S., also needs to be re-examined. Since its passage, auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated. Of course, we must not in any way diminish our ability to detect corporate fraud and protect investors. But there appears to be a worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth, for fear of facing personal financial penalties from overzealous regulators."

They were arguing for REDUCING the regulations that had been passed after Enron!!!!

...We will be paying for all of this now and down the road because of Socialism. That's what I am trying to explain. That's why I am taking the time to slog though this. Because it all sounds so foreign - because it has all been going on, behind the curtain. So we really haven't been aware of it. It's like Illegal Immigration, been going on for 45 years, they have been passing these laws, and we really haven't been aware of it. We're aware of it now, because we are on the hook for it.

What Chuck Schumer wrote in the WSJ Op-Ed in November 2006, is not what Chuck Schumer says today. Here's what he said on the senate floor

"8 years of de-regulatory zeal by the Bush Administration, an attitude of "The market can do no wrong" have led us down the short path to economic recession. From the unregulated mortgage brokers, to the opaque credit default swaps market, to aggressive Short Sellers who were driving down the price of even healthy financial institutions based on innuendo, this Administration has failed to take the steps necessary to protect both Main Street and Wall Street".

There may not be a silver bullet to fix what is currently dragging down the economy, but we can take steps to mitigate the costs and make sure that the impact of this crisis will be short-term. " - Schumer, (D-NY)

See, our nation would be far better off without charlatans like Chuck Schumer. We have you dead to rights here Chuck. We have you in writing where you demanded LESS regulation and less oversight. So the fact you go to the senate floor and spew your talking points doesn't work here.

We have you Barney - we have you dead to rights too. You're a liar. You fought the reforms the Administration tried to put in place in 2005.

Yet Frank had this to say today:

"The fundamental issue is we have got to put an end to this situation in which there is no sensible regulation, and irresponsible individuals in the private market, or unwise individuals in the private market can incur the kind of risks that put us in a threatening situation," said House Financial Services Committee Chairman, Barney Frank.

He's a liar.

Now Barrack Obama, Obama is allied with radical groups like ACORN. These radical Left wing front groups like ACORN which pushed hard for the legislation that Carter put in place - the CRA forcing private financial institutions to make the riskiest of loans.

We have the Clinton Administration dead to rights - including Janet Reno, who insisted that these banks and financial institutions would not be able to survive and expand unless they took a certain amount of their assets and applied them to the riskiest of loans. That's what they created in 1995 with this sub-prime market - of zero down loans. They were trying to come up with packages so they could meet their federal requirements. And they did.

Then step in the two government-run entities, Fannie and Freddie - and they are buying up these loans from the private sector as far as they can. Now that doesn't promote home ownership, yet that is what they were in existence to do. So why were they buying up these risky loans?? Because they appeared as assets on their books, even though they weren't. And the more assets they had, the bigger the bonuses for Franklin Raines, and Jamie Gorelick, and Jim Johnson - these three who are Obama's ECONOMIC ADVISORS - that's why they bought them up. It was in their OWN self-interest!!

I've seen no evidence that these three are, in fact, Obama's "economic advisors," but in July the Washington Post reported that, since his resignation from Fannie Mae, Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters." Gorelick was mentioned some time back as a possible choice for Obama's Attorney General. In June, the Minnesota Post reported that Jim Johnson was an Obama advisor, but did not specify what Johnson was advising him on. The story did state this, however:

No matter how they were introduced, the selection of Johnson to be a part of the inner circle seems to run contrary to Obama's campaign theme of "change.''

Johnson represents Washington power as it's always been. He's the consummate insider. He's very rich, very connected and very much behind the scenes.

Johnson's wealth and politics appear to be related.

Interesting.

Continuing with Levin's monologue:

This corrosive cronyism, has spread throughout the financial institutions in this country. That's why they are hustling to fix it! Their fingerprints are all over this dammit! Don't you see???!!! This wasn't the private sector that did this, this wasn't any individual company that did this, this is institutionalized corruption - we call it Socialism!!! Every effort to address it by the Bush Administration in '03, by the Republicans in '05, was rejected. Rejected by Chris Dodd, rejected by Chuck Schumer, rejected Barney Frank, rejected by Nancy Pelosi and Harry Reid. This is why I rail against this! This is why I rail against the Left and the Socialists.

This isn't a joke! This is real life!

And now, over the weekend, the Treasury Secretary - who is a Liberal Democrat, and a Friend of Schumer's - has a plan that sticks us with a bill of over 1 TRILLION dollars!

We're nationalizing businesses, we're subsidizing businesses, now we're going to create a one trillion dollar trust?

I tell you what; Socialism Sucks.

The Paulson plan could cost $1 trillion!

Look what your government has done! They have dragged us to the precipice!

You and I weren't overseeing Freddie and Fannie - you and I had nothing to do with this CRA law - with all these Left Wing grassroots groups - or forcing banks and thrifts to cough up money for risky loans - we had nothing to do with this!

This is what goes on behind the scenes.

"Oh it's Capitalism and Free Markets that are the cause" - no it's not - THAT'S the problem!

What kind of a businessman gives a loan to someone who cannot pay it back unless they have a gun to their head???

...So all this crap that is out there - all these bad loans that are out there - they are going to pass them off into this fund, so every business out there that is loaded with these is going to dump them on you and me - the American taxpayer. To save those businesses. And by the way, those businesses - in many cases were forced to make these crap loans by the very people who are going to save us!!!

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC's "Good Morning America" said lawmakers were told last night "that we're literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally." 


Why is Chris Dodd still chairman of the banking Committee?? Why isn't he spooning out slop at some federal prison? Why isn't he in charge of the soap at some Federal prison?

"What you heard last evening is one of those rare moments — certainly rare in my experience here — was that Democrats and Republicans decided we needed to work together, quickly," Dodd said.

Funny how they want to work quickly to fix it now - but refused to do so in 2003 and 2005 BEFORE this collapse was triggered.

"Congressional leaders tell Politico that to expedite the rescue, Treasury plans to seek additional authority rather than creating a new entity. The plan involves buying up hundreds of billions of dollars in bad mortgages to take them off the books of financial institutions that otherwise might fail".

...Yeah let's hurry up (and fix this) let's set this thing up before the American people figure out what's going on. Let's set it up - because as all the experts keep telling us, "this is just too big to fail!" That's too big and this is too big - we have to nationalize everything! That'll fix it! That's because we know that whatever the government does is okay and whatever the private sector does is horrific.

I'm sick of these Socialists.

What happened here wasn't due to a "lack of federal regulatory oversight," it happened because of federal regulatory oversight - oversight that set up conditions that a free market would not have. The government required banks to make risky loans, then provided entities to remove much of the risk for the lending institutions. Making loans means lenders make money. There's an incentive to make loans. If there wasn't, no one would make them. But there's also risk, which is why the old cliché goes "You can only get a loan if you can prove you don't really need one." If the risk is minimized, then the money flows freely.

And it did. Zero Down! Interest only! Jumbo ARMs! And low prime interest rates only fueled the fire. Greed certainly had a part in it - lenders undoubtedly convinced borrowers that they could afford a bigger loan than they had any business asking for. On the radio the other day I heard a sixty-plus year old woman complaining that a lender convinced her and her sixty-plus year old husband that they could afford a loan with a $5,000 a month payment, since interest rates were low. Zero down! No, no, no, you don't need a no prepayment penalty clause! Certainly your son and daughter-in-law can be included since they'll be living on the property with you!

Except the son and daughter-in-law divorced. And the property value has plummeted. And even if they could refinance, the prepayment penalty is prohibitive.

I'm not letting the lenders off the hook.

But I'll be damned if I put all the blame on them, either.

Ladies and Gentlemen, Boys and Girls, the free market works, if we let it. But when we fuck with it, we do so at our own peril. There's this thing called the "Bell Curve." Some people are stupid. Some people are greedy. And we forget this at our own risk.

In that piece on Locke v. Rousseau I linked to yesterday, "doqz" said:

Locke thought that men were born morally/intellectually neutral, the blank slate (that idea was developed by Locke in the course of his career TAing survey history courses to freshman in a major state University). And in the course of their life, people become themselves though accumulation of experience.

--

Jean-Jacques (Rousseau) thought that men are born good. I am not going to discuss what he thought about women – this is a family program. But men were born excellent. Unfortunately in course of their life they are corrupted by the state, which learns them all sorts of bad ideas and words. Like stuff. And the desire for more stuff.

P.J. O'Rourke said something similar in his book Republican Party Reptile:

Neither conservatives nor humorists believe man is good. But left-wingers do.

For some reason they neglect to remember the last part of Rousseau's Philosophy of Man - Man gets corrupted.

No, to the Left there must be some uncorrupted Enlightened Beings - "Lightworkers," if you will - to whom we can entrust our care and feeding so that we don't have to concern ourselves with it any more.

(UPDATE: LabRat has a P.J. O'Rourke quote of her own in the comments that is very apropos:

When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.

Indeed. End update.)

The Socialism Levin rails against isn't the boot-on-a-face-forever Orwellian image, or even the dystopia of Burgess' A Clockwork Orange. It's the ham-handed destructiveness of those for whom beautiful ideas - in this case "fairness" in lending to people who probably shouldn't get mortgage or small business loans - turn into disasters - in this case a financial debacle of almost unimaginable proportions - because too few are willing to deal with reality.

And that's the biggest problem I have with the Left. To be sure, the Right isn't immune to it, but the Left seems to wallow in it.

It didn't work, but the philosophy cannot be wrong! Do it again, only HARDER!