Sunday, October 12, 2008

Who's at fault?

A copy of an e-mail I received from a friend of mine:

If you haven't seen SNL's spoof of Herbert and Marion Sandler, you've
missed one of the best comedy pieces on the issue. Unfortunately, NBC
has since censored it due to complaints... As a result, the following is
the only place I'm aware of right now in which you can watch the
uncensored section. The SNL skit starts 40 seconds into the video.
There's also good information on who the Sandlers made political
contributions to afterwards:

(the full SNL skit is longer, if someone has a link to the entire,
uncensored skit, please let me know as its important to find a non-fox
link. YouTube had the longer skit but it's gone as well! Good to see
such unfettered political speech...)

BTW, the Sandler's gave over $2M to the Cntr. for American Progress,
whom the author of the business week article that is floating around
regarding CRA seems to have a very high opinion of...

FWIW, which is little on several counts, I'll vent some of my own

1) I don't find the platitude that there's plenty of blame to go around
very helpful. Individuals got us into this mess and they should be
hunted down like the dogs that they are. A thug with a gun couldn't of
taken this much money from us - but he would be jailed!
2) Put aside the party politics. It doesn't matter if it was 2
republicans and 10 democrats or 2 democrats and 10 republicans. When you
defend the party you protect the guilty by blurring the issue. Hunt the
dogs down regardless of party.
3) Understanding the how's and why's are critical going forward.
Decisions were made that need to be reversed and avoided!
4) I'm a conservative and am not a party loyalist - so don't make the
mistake and assume that I am. To me, being a party loyalist sends a
dangerous signal that politicians can do what they want and I'll still
support them...

Bottom line, as they said after 9/11, let's connect the dots...

... here's my developing understanding, at this point in time, of how
Freddie Mac and Fannie Mae played their part in this mess:

1) CRA was designed to operate below the radar and provide a welfare
alternative by having strong borrowers subsidize weak borrowers
2) Banks cooperated to a reasonable extent by balancing the loan risk
with political risk (i.e. activists attacks) - this minimizes the impact
of CRA
3) Activists realized CRA was limited in effectiveness and petitioned
congress to enable Freddie and Fannie to loosen their standards. It's my
understanding the they ultimately were leveraged 80 to 1!
4) With ready, Government sponsored buyers (Freddie and Fannie), banks,
the Sandlers,, wrote and sold the sub-prime loans. The door for
reckless profiteering was wide open. NOTE: the fact that greedy
profiteers exploited the opportunity DOES NOT ABSOLVE THE POLITICIANS
5) Oh yeah, lets not forget that the increased supply of mortgage loans
increased the demand for homes, which inflated the prices of homes,
which ultimately made the resulting mortgages even riskier and a
correction even more painful. Add to that other people taking out home
equity loans based on the artificially increased value in their homes
5) Freddie and Fannie then packaged up the sub-prime crap with good
stuff and sold it off as Mortgage Backed Securities (MBS) or
Collateralized Mortgage Obligations (CMO) . These do end up in CDOs that
you've heard about...
6) NOW, get a ton of these sub-prime mortgages out in the market (along
with other business that probably have too much financial leverage), and
you have a credit situation that is very sensitive to adverse changes in
the economy. Now, increase interest rates and commodity prices, and add
a slowing economy to the mix... then watch the defaults hit the floor.

So why didn't the republicans fight harder to reign in Freddie and
Fannie? Certainly the CRA/Freddie/Fannie system was a democrat submarine
for social welfare so we know why they fought against reigning them in.
Could it be that a compromise was reached? Lax lending standards for

Seems to be the perfect storm to usher in the USSA even though the
government is not the solution to the problem

-End of Ramble


Lucid Guy said...

Ordinary, you nailed it. This fiasco was built on the notion that real estate would always be worth more tomorrow than it is today, but they failed to remember their economics 101. Any currency (dollars, euros, mortgages, beads) are only worth what someone else is willing to pay for them. So, once every potential buyer using wellfare and Social Security payments as evidence of credit was in a ballon payment mortgage they had no hope of making, they all started to default. Once the first default domino fell, there was no way to stop it.

The worst part that we have yet to really feel is the part that speaks to investment principles. We've all learned that you put a little bit away every year and diversify your portfolio and over time (10-20 years) you build up enough to retire comfortably. That's called "playing by the rules". Well now, that ellusive 10 year time horizon (your investment will grow over time) punch line is blown to hell. No one trusts the market any more so it's back to mason jars in the back yard.

Thanks to the greedy politicians (both parties) and the mortgage houses selling dung in a gold pouch, we are a lot closer to planet of the apes.

Got a loin cloth I can borrow?

Beth said...

How is it that we send to Congress the most inept bunch of people?

Ordinary Guy said...

SNL Skit:

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