Paper: Private Sector Loans Triggered Financial Crisis, Not Fannie Or Freddie

McClatchy:

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Read the whole story: McClatchy

Comments

[windwalker1984]

I have received 2 emails in less than 3 days from people forwarding emails that others have sent them and both covered the following points:

1) Fannie and Freddie are to blame for the markets crashing and B.O. is buddies with people who work there, so he is to blame.
2) Fannie and Freddie made loans to minorities.
3) ACORN is somehow involved in subprime loans and B.O.

Therefore, minorities and B.O. are to blame for the entire Wall Street meltdown.

HEY, B.O. CAMPAIGN -- YOU HAVE TO GET THE WORD OUT AT THE NEXT DEBATE THE TRUTHS ABOUT WHO IS TO BLAME -- WALL STREET PRIVATE BANKS & COMPANIES.

[rbarry647]

Agreed - this is a big percentage of the water cooler talking points and the truth needs to be put out there.

[KillTheMessenger]

If it came in an email, it must be true. I keep getting the ones that promise to make my dindong twice as big... maybe I am making a mistake by not believing them?

:-)

[darthdarcy]

The Republican obsession with deregulation lead to this insanity..!

Also the repeal of Glass Steagall and The Commodities and Futures Modernization Act but the Derivatives had to get exemption from not only the SEC but also The Gaming Commission that's how crazy this stuff got, imagine the Gaming Commission we truly had real gambling as the foundation of our economic system, these guys were shooting craps, rolling the dice so to speak and somehow that's supposed to be conservative..?

So clearly these conservatives were and are nothing less than scoundrels and swindlers, so why should we expect them to see the error of their ways and adjust their spin or dialectic..?

No they'll look to scape goat the poor and minorities creating scape goats goes back in history as we saw in Europe 60-70 years ago that;s what the right wing is doing here now in America as well, and has been doing for decades...

[BlackWidowPilot]

"I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

- Thomas Jefferson.

Truer words were never spoken.

Leland R. Erickson

Citizen

[Carolab]

"I fear the international bankers more than the Confederacy itself." - Abraham Lincoln.

"Give me control of a nation's money and I care not who makes the laws." - Mayer Amschel Rothschild

[Carolab]

Without democratic control of national currency, via democratically elected bodies such as Congress, sovereignty becomes an impossibility. We need to be dealing with reality here, not ideology.

Central banks that are privately owned - that is, controlled by large corporations or small groups of financial elites - tend to damage national economies while benefiting the financial elite, and more critically, undermine all ability of democratic governments to hold real power on behalf of the people, giving power to the bankers and corporations, and removing effective power from parliament or Congress.

Allowing private empires, such as those who control the FED, to "manage" the nation's money is pretty much letting the wolves guard the hen house. Democratically elected governments have the right, the mandate and the power to print and control the nation's currency.

To forgo this right and pass this power to highly concentrated financial dynasties, is both unwise and highly dangerous. Jefferson, Jackson and Lincoln knew this, and fought to prevent the handing over of control of the nation's currency to a private bank. They were far more prescient than most people or politicians today. Their advice on keeping the central bank public and democratically controlled should have been heeded. Having failed to heed their warnings, we must today correct our mistake. The issue of control over national currency is absolutely central. All talk of freedom or democracy is meaningless and hollow if this is not addressed.

[Bettysdad]

I have the confederacy in front of me, and the bankers behind me.

I'm more afraid of the bankers.

A. Lincoln

[JamesInDenver]

Sure blame "regular people" and "low income families" for the whole mess. It couldn't possibly have been the a** h***s on Wall St. who were raking in Billions of dollars. And of course the Fed, which lowered interest rates to 1%, didn't have anything to do with it either.

All Republican should be required to pass lie detector tests before they run for office. That would solve 90% of the worlds problems.

[bushflipflops]

The craziest thing I heard about these credit default swaps, was that people were buying them to cover securities they didn't even own. It's like me and 20 other guys buying fire insurance policies on your house in the hopes that it will burn down and we'd get paid. What kind of insane casino were they running on Wall Street?

[Carolab]

Greenspan's Federal Reserve Bank casino.

[sparafucilli]

I've seen numbers reported that are as high as $500 TRILLION in derivatives floating around. How much of this is sup-prime is anybody's guess. The operative clause here is lack of oversight by Bush and the rest of his Masters of The Universe. Time for a reboot - vote Obama

[xristy]

It's over $600 Trillion in notional value. See the Bank for International Settlements derivatives statistics: http://www.bis.org/statistics/derstats.htm. Per the CIA World Fact book the GWP is about $67 Trillion.

[KillTheMessenger]

The total estimate for the value of residential real estate in the US is only $10 trillion. Anybody who keps throwing higher numbers around clearly shows that they don't understand.

[aaronr2000]

I find this article to be quite refreshing and well overdue. This is the textbook definition of scapegoating, and it rears its ugly head at the peak of an economic crisis.

In this situation people would rather blame someone else for their pain that to take the time to learn about derivatives, mortgage backed securities, speculation, mark to market accounting, Enron loopholes, deregulation, etc. Scapegoating is also easier than accepting the fact that you in your complacency and apathy and even your support for the real culprit share some blame in the calamity your country is now facing.

[Navy26Yrs]

The news is this...

Another pile of garbage the rightist "non-elite" have created (economic meltdown the fault of Freddie and Fannie loaning to poor folk that could not afford it) is debunked. Every single talking point they create turns to ashes and is blown about in the wind. 23 Days until we get our country back.

Vote early and on paper.

[dzent1]

If this keeps against them up, taxpayers should REPUDIATE the debt being heaped upon them and generations to come by this administration.

[Carolab]

Don't worry, they are tightening the screws on us.

[KillTheMessenger]

And this is news, why? Or does anybody really still think one can neutralize GOP spintanks and the Limbaughs of this country with the truth?

[dadw5boys]

It is true !
Fannie and Freddie only had 4 % in bad loans on thier books before the banks and investment houses started going bankrupt.

[KillTheMessenger]

"But when in doubt blame Jimmy Carter" still works for millions of people. And that is the truly sad part of this story.

[S1m0n]

Look around you. Is McCain getting any traction? How's his swift boating campaign doing? Oh, not either, huh. Looks like the people have had enough, to me.

[KillTheMessenger]

People had enough. That does not mean they actually understand what is happening around them. People do not acquire the necessary intelligence and background knowledge to know when they are being lied to by professional liars just because they are hurting. What you are looking at is a pain driven reaction, not a sudden awakening.

[bushflipflops]

Exactly, they are already telling the dittoheads it was the fault of liberals and the minorities. No matter what info comes out they will never change their minds.

I bet all of you, right here and now, that in 3 years we will still hear these idiots talking about ACORN , Fannie and Freddie, the CRA, just like they couldn't shut up about whitewater during the Clinton years.

[GirlsRule]

Sad to say but I have friends who bought very expensive homes that were beyond their means. They could have bought a first time home within their means. Where did they get the loan? Country Wide. I have a family member who has 3 mortgages on 3 homes ( close to $850,000) these homes are vacation rentals. Without steady income from rentals their is no way he could pay these mortgages. He bought a half mill home with nothing down. We'll be bailing out strangers, friends and family. I don't like it.

[Carolab]

Again, this crash is because these loans were securitized and sold off over and over again to collect capital. The fault is that they were bundled and leveraged to ridiculous levels.

Read this:

http://www.larouchepac.com/news/2008/10/09/derivatives-hyperinflationary-bomb-crushing-international-fi.html

[Carolab]

The problem is that these loans were securitized into bundles in which no one knew what they were buying, then they were rated to get the most capital and they were sold over and over again to the point that they were leveraged to a point where there was simply not enough capital to cover them.According to the most recent data, released June 30, 2008 by the Office of the Comptroller of the Currency, the three largest American bank holding companies, JP Morgan Chase, Bank of America and Citicorp, had current outstanding derivatives contracts, totaling $179.4 trillion dollars. The three banks combined have total assets of just under $5.6 trillion!

As of Dec. 31, 2007, according to the Bank for International Settlements, the total over-the-counter and exchange-traded derivatives totaled more than $675 trillion. However, these “authoritative” figures are, according to Executive Intelligence Review analyst John Hoefle, grossly understated. The true figures, Hoefle estimated, are well-above a quadrillion dollars.

[KillTheMessenger]

"The problem is that these loans were securitized into bundles in which no one knew what they were buying"

I dare to inject that the people who bought those bundles knew exactly what they were buying. Those instruments are not being traded by naive customers of the financial system but by professionals. Sadly, even professionals can be overtaken by greed and then all bets are off.

The quadrillion dollar number is completely meaningless. It includes the fact that the same thing was sold over and over and over again. That did not make it any more valuable. It's just accounted for more than once.

If we assume that the average turnover time of US homes is something like eight years and that the main bubble built up over the course of four years, roughly half the homes are involved in it. The average home price in the US is something like $250,000. Let's say that was inflated by 40%, i.e. $100,000. So then the roughly 100 million homes in the US would have over-inflated by 0.5*100 million *$100,000=$5 trillion. So you are off by roughly two orders of magnitude.

The total residential real estate value of the US is estimated to be approx. $10 trillion. That is completely commensurate with my estimate for the size of the bubble.

[Carolab]

And by the way Google BIS, Bank for International Settlements, for a REAL education about who controls the money.

[IzzyCA]

Excellent point. Last year, I was looking at buying a condo. Country Wide was one lender I was considering (this was before the problems began). Country Wide was aggressively marketing a loan that I KNEW I could not afford.

They tried to tell me that I could afford a mortgage that would be over half of my monthly income, that the difference would work out "in tax breaks" for me. They even suggested ways I could make it look like I had more assets than I really did.

I told Country Wide no. They continue to call and email me, even last week they sent me an email, trying to get me to consider a mortgage. Unbelievable.

[KillTheMessenger]

But obviously you were smarter than them. The problem starts with all the people who were not.

[Carolab]

Thank YOU! It's the DERIVATIVES, stupid!

[Paul]

Whose idea was it to lend money to people without checking for income or assets?

That's the guy who is responsible for this mess.

[bushflipflops]

I don't know. But I do know it was Greenspan who said adjustable rate mortgages were great, right at the height of the bubble when interest rates were at their lowest levels. Why would any intelligent person tell people to get an adjustable rate mortgage when the only direction the interest rate has to go is up?

[Carolab]

Holy S**T what IS it going to take to make people understand this? Greenspan was pushing subprime in order to make the entire derivatives scheme possible! They were flooding the market with phony derivatives in order to get capital from foreign markets on securities that were leveraged to the hilt! And they KNEW they could run to the government for a bailout because the government gets its "paper play money" from the Federal Reserve Bank, of which Greenspan was the Chair.

[dadw5boys]

I doubt Greenspan said that

[Carolab]

Jesus, did you even read the article? You just missed the entire point of it!

[cordyc]

The evil genius Hank Paulson, as CEO of Goldman Sachs, was a major champion of derivatives on the mortgage back securities. He was assisted by Phil Gramm and friends in getting the necessary legislation passed within a 1300 page budget bill.