Before the Bailout...

[Penn]

This should be in the bailout thread, but I want as many people to see as possible. P

This a video of a hearing in 2004 on freddie Mac and Mae, If you are not outraged at the behavior of the protectionism as presented by the black congressional Democrats in the house with regards to CEO of Freddie Mac you’re brain dead. It is by far a scathing example of the problem in the housing industry four years prior to our current situation and the 700bn Bailout. It was recognized by the republican members and they, along with the oversight committee are attacked across the board.
Be prepared to be really pissed off.

The McCain & Co should play this entire video every day until the election.

http://uk.youtube.com/watch?v=YL36nwCSYUM

It’s also of some interest that this video comes from the UK

[Red Flag 1]

Chef,

Saw this a few days ago. The missing link is ACORN.

Pretty clear where the dims stood, and stand today.

Agree, all voters should watch this before casting their ballots!


RF 1

[Snaquebite]

The McCain & Co should play this entire video every day until the election.


Saw this a few days ago and i agree...only ad they need....

[Richard]

Here's a good piece to get a broader perspective on this whole financial foofarah...kinda like 'Global Climate Change'...it's not just us. I wonder how all this would have played out if it wasn't an election year?

Richard's $.02 :munchin

Both Sides of the Financial Crisis
Lawrence Henry, The American Spectator

[ONE SIDE OF THE STORY - the Freddie/Fannie/Congressional/Wall Street part of this affair.]

THE OTHER SIDE has been told most effectively, and most entertainingly, in a May broadcast of the NPR show "This American Life, titled, "The Giant Pool of Money."

First, the global money supply doubled by the early 1990s. That doubling, from $36 trillion to $72 trillion, took place in a mere six years, and signaled the emergence into the world economy of countries like Korea, Taiwan, Thailand, Malaysia, China, and India. That pool of money, much of it under institutional management, sought its classic investment: sovereign debt, the bonds issued by solid, secure countries, chief among them, the United States.

There wasn't enough sovereign debt to go around. Institutions around the world clamored for something from the world's big investment banks. Those banks cast around for some reasonable alternative, something "as good as" -- or just about as good as -- Treasury bills, bonds, and notes, and municipal bonds, and they came up with the idea of creating securities out of pools of mortgages.

That's the second element in the developing crisis: securitization. And here, the really technical aspects of the story come into play. Software boffins employed by the big investment banks found one after another way to fold mortgages into bond-like investments, and those instruments got more and more complicated. There were swaps, strips, mortgage securities exchanged as collateral for other investments, indexes of mortgage securities used as the basis for derivatives, and a whole lot more well beyond my ken or that of any ordinary citizen.

ON DOWN THE MORTGAGE FOOD CHAIN, lenders of all kinds, from banks to strip malls, were pouring money out the door, into ever weaker housing loans. Eventually, borrowers could get home loans without stating assets or without proving income. The lender didn't care. His company instantly bundled the loans and sold them up the chain, where they were bundled -- securitized -- by a giant money center bank on Wall Street. Wall Street sold the securities to eager investors.

The New York Times story from 1999 contained a warning:

"...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 1980's."

Ultimately, Fannie Mae and Freddie Mac served as buyers and market-makers of last resort in the securitized mortgage market, all the way from strip malls up through Wall Street.

SO WHAT BROKE FIRST, AND WHAT BROKE WORST? When the "economic downturn" foreseen in the Times did come, where did the fault lie?

With interest rates steadily being lowered by the Fed, and with housing prices rising, private sector mortgage players could have created a crisis all by themselves. Most significantly, at the Wall Street level, people got fooled by their software. The models all predicted that, even with defaults, mortgage backed securities should pay off just fine. No software envisioned defaults of 50 percent or more.

And, no mistake, Wall Street can get into trouble all by itself with no help from the government. (See AIG and credit default swaps.)

Would lenders have made such bad loans without government interference, indeed, without government pressure? Probably not nearly as many of them. When the break came -- when defaulting lenders could no longer clear their debts by selling their houses -- lenders probably would have tightened up their practices. Some lenders would have gone bust.

Wall Street would have adjusted their software models, and the whole thing would have pulled back. Some Wall Street firms might have failed.

But with the government pushing the whole process along, it became the train wreck of today.