WSJ has a good article on this mess.

Nice summary:

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The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

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and a little more:

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The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

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So if this guy is right (which I think he is), it's govt policy and pushing to give people credit who can't afford it has caused banks to fail, credit to shrink and to put us in this big ol' mess.

Jordan .

It's been an interesting few weeks.  Does anyone wonder what would be happening now if we were a few months into an Obama administration instead of still in a Republican administration?  Would people be more wary of financial socialism?  Guess we'll never know.

So far we've got a $700 billion rescue package, but at least one could make a case that was justified, even if that number is way too small.  But what about everything else?  We added 447 pages to the rescue bill dealing with carbon controls, geothermal and wind credits, a tax exemption for wooden arrows (??), redefinition of mental illness, changes in Virgin Island rum excise taxes, money for wool research, tax writeoffs for auto speedways, small filmmaker tax breaks, and an expansion of FDIC insurance.  We've turned our investment banks into, well, banks.  The government has negotiated a sale of Bear Stearns, forced Lehman to fold, allowed Merrill Lynch to sell to Bank of America, taken over Fannie Mae, Freddie Mac and AIG, given Wamu to JP Morgan, and maybe given Wachovia to Citi, even though Wells Fargo wants to buy it.  Short sale rules have been changed.  Hedge funds may not have a business model going forward.  Senator McCain wants the President to fire the SEC chairman (he can't).  And the rescue package uses tax policy to urge limits on executive pay.

"The scenario is that Europe and others will be transferring their money to Irish Banks ! "

To quote Caleb - "Uh ohhhhh."

Jordan .

doodle doodle ip

dooodle dooodle ip

zzzzzzzzz The liberal media scum had once again attacked Sara as they had in Sept Oct 2008. Raymond would have to ah give her support this warm night. The whole separation from Todd documents had the vultures salivating.  Raymond snickered about Sara's Ray 7 pack joke.........

Wall street and 'anglo-saxon' capitalism is in meltdown. The article linked in your 'bush is a dolt...' thread highlighted the reasons why. Not because the article was correct (it read like someone had took an economics 101 class and stopped there) but because it shone a light on US attitudes towards regulation. Incentives make for a healthy and wealthy economy blah blah blah. Yes very good, in theory.

Read the front page of every newspaper in the world and then tell me with a straight face that that the current crisis isnt a huge indictment of that ideology. 

I wish Milton Friedman was still alive to witness this mess.

Of course it's about greed, making more money, etc. But it's not all about capitlistic idealogy!! Capitalism is NOT a bad thing, and the world seems to continue to follow the US' brand of capitalism. It creates competition and well run capitalism which remembers the consumer doesn't need heavy oversight. Right now, Europe is currently splintered and can't get together to attack their problem, while the US is able to. And guess what, even with all this stuff happening, our dollar is rising again against the Euro. And with so many banks going nationalized in Europe - that's not a good thing for our European taxpaying friends in the long run.

But THIS specific situation happened because the US govt and other organizations (like ACORN) was putting its dirty little hands into the market and into housing market telling banks and other organizations to increase subprime loans and to give loans to people who couldn't afford it! These groups turned around and sold these off to other banks who were wanting to use it to make more money, etc. So when people couldn't pay and defualted on their loans, all those banks lost their money and started going under.

To give you an idea, in our small subdvision of maybe 100 homes that all got built up during the real estate bubble: behind us there are 3 homes - 1 that has been for sale for about 9 months, one that a couple just moved out of and is now for rent (not sure why), and there's a third next to that one which might be up for sale - doesn't look like that couple is there anymore. Across the street from these homes, there are one or two more homes up for sale. That's just one small portion of ONE STREET in ONE BLOCK! I know it's anecdotal but it's like this around the country.

Over in Colorado, real estate agents and bank officials are on trial for fraud because they were selling homes to ILLEGAL ALIENS. Obviously, these illegal aliens couldn't afford their homes and guess who picks up those homes? US Taxpayers. Here's the article. "Hundreds of cases" the article mentions. Let's say that's 1 home per case, and each house is 100,000 (which is probably low), that's $10 million at a minimum but it's probably safe to assume we are talking more like $80-100 million!

So yes, capitalism, but also because the US govt put into the mix a bad situation of pushing banks to give BAD loans to people who couldn't afford it. Mix in the US consumers' high CREDIT CARD DEBT, and it's not a good mix.

OUR CURRENT Situation is not due to regulation, but rather due to the fact that govt was trying to push banks to do something that resulted in BAD DECISIONS, in an effort to create a type of socialism, without the govt actually creating a million dollar program to do so. We can go back to 1977 in which Jimmy Carter and the rest of the US govt created the Community Reinvestment Act which was the catalyst for some of this.

Do a search for submprime and you'll find lots of articles:

http://seekingalpha.com/article/26520-rise-in-sub-prime-defaults-leave-investors-asking-who-s-next

http://www.americanprogress.org/issues/2007/03/foreclosure_paper.html

http://findarticles.com/p/articles/mi_qa5293/is_/ai_n21237106

http://www.iht.com/articles/2007/11/26/bloomberg/bxbond.php

It's NOT the free market entirely that's the problem here - anyone who has gone through Economics 101 knows that! It's the FACT that Washington interferrence and a lack of accounability from both Washington and Wall Street and from foreign banks IS the problem.

Jordan .

Lets, I share your props to Milton Freidman 100 %. He made a big turn from his early Keynesian years ( 1950s ).

Jordan , I share the jist of your post above and social engineering, mostly pushed by the Dems. 

I'm edging towards identifying 'the problem' (if there was just ONE problem) as being central banks' lending policies.

Every time over the last, uh...however long...when there was a slight dip or perceived possibility of a dip in some kind of metric important to the fat 'n' sassy wealth holding class, the Fed would kowtow to their demands over interest rates.

BTW, I got no idea what I'm talking about.  But I'm sure I'm onto something.

Well, you are more right than wrong IMO. BTW macroeconomics in a post derivatives skewed global situation as has evolved is new ground. The subject is not a nice area subject to defined mathematical parameters and known principles. It is more than I can get my arms around.

Just that for better or worse banking has an effect on Main Street, including the proletartiat :). 

Hero, I have my lumpen cred. Union member 6 years !!

Oh and union pension funds, mom and pop brokerage retirement accounts. College endowments.Own the banks

So Mr. Fuld CEO of Lehman Bros. goes to the company gym the day after announcing the end. The shithead is on a treadmill when a guy lifting weights goes over and punches Fuld square in the face and he goes down on the floor. Then Fuld is on TV at the congress yesterday to testify and blames short sellers for the collapse. I hope Fuld goes to gym again. 

herofix - you are also right. There's a number of things that caused this issue, including lending policies amongst the banks. The catalyst was the default mortgages that have been dropping for the past couple of years. When I searched for subprime today for thosel inks above, i found a number of articles that were over 12 months old! It's Monday Morning Quarterbacking but there's no doubt now that hindsight is indeed 20/20.

It's not just 1 thing, but the thing I keep coming back to is the question of - would these banks have given out loans to people who couldn't afford them if the govt wasn't pushing these banks to give subprime loans?

Jordan .

lol. The govt has had to majorly intervene to save the whole system from inevitable collapse. Free market THEORY is on the ropes. Get used to more regulation guys, cos just like the enron mess you'll be even more wrapped up in it. More firefighting to put out fires that with a better set of principles and attitudes, shouldn't have happened in the first place.

I agree with Jordan about Europe. Sovereign states should be allowed to act independently and not ask permission from the EU before acting. Europe can never be expected to sing from the same hymnsheet and  respond like the US does as there are too many competing interests and ideologies. The EU needs to double its integration or just quit the project altogether. Crises such as the current one highlight this.

Yikes, Obama and ACORN, Asociation of Community Organizers for Reform Now. ACORN is under investigation for massive voter registration fraud in 18 states !

"Barack Obama Never Organized With ACORN" (Barack Obama For President Website, http://fightthesmears.com/articles/20/acornrumor, Accessed 10/4/08) "

Not true.

I'm hoping the democrats will put humpty dumpty back together again for you guys.

Highly doubtful that the Dems will be able to fix this mess. No one can fix this until people understand WHY it happened and are willing to admit that mistakes were made by both parties for the past 30 years. 

Two years ago, it was Republicans warning us of what might happen and suggesting something needed to be done about Fannie and Freddie.

Jordan .

I wouldn't get *too* worked up over the ACORN voter fraud- at least in most places it will have  no impact on actual voting.  I'm certainly not defending it, but its impact will be at the level of registrations, but there is no real evidence that anyone is going to vote with the obviously faked registrations (except possibly see below).  ACORN pays its contracted employees by the completed form (obviously a bad business model), and so some greedy and lazy people just fake names and addresses.   ACORN is required by law to turn these over to the local voter registrar even if they are obviously faked, and in most cases flags the bundles of obviously suspect votes when they turn them in.  For example, ACORN had repeatedly informed the Secretary of State in Nevada about these suspect registrations, so the recent raid on an ACORN office was nothing more than a publicity stunt (Sec of State is a Dem- so not sure what the motivation- he's either a die-hard hillary supporter or else being overly dramatic to try to make it clear the state is on top of the problem).

 In most cases, the effects of many obviously fraudulent registrations will be 1) a drain on state and local resources to check other types of voter fraud, 2) redistribution of voting resources based on partially incorrect voter rolls. 

 The one exception to this may be Ohio (or other places in which  registration and early voting can happen on the same day).  There's been some back-and-forth about how these votes can be checked- my understanding for Ohio is that the early votes will be checked at the state level in Ohio using DMV and Social Security databases as well as confirmation cards sent to the registrant's home, but its not clear how the fraudulent names are going to be passed back to the local registrars to prevent people from voting again in November.  I'd guess this will happen, but the GOP is unhappy that it didn't happen in time for them to make their own challenge list.

 Democracy Now (yes, not exactly a centrist source, but these are interviews, so meh) had a couple of interesting interviews on problems with voter databases, etc:

http://www.democracynow.org/2008/10/9/greg_palast_on_vote_rigging_and

http://www.democracynow.org/2008/10/9/ohio_secretary_of_state_jennifer_brunner

blank for now

Forgive me if I'm wrong but have the Republicans not been in power for the last 8 years?

Furthermore, why have one single party when its obviously so divided on fundamental issues such as spending? Bush obviously doesn't care much for fiscal conservativism since he took his inherited budget-surplus into an insanely huge deficit because of his penchant for massive government spending. Maybe both camps should have an ideology debate because its obvious that they are very confused about certain things.

"Forgive me if I'm wrong but have the Republicans not been in power for the last 8 years?"

Yes, Bush has been president for 8 years, but the GOP haven't had Congress for the past couple of years - during this time, this problem started to arise as a major issue. Bush has very little power in Congress when the opposing party is there, esp when the Dems have been spending the past 2 years doing NOTHING besides holding do-nothing hearings. Do I need to remind you of the lack of power Clinton had in Congress after 1994 when Newt and the rest of the Republicans took charge of Congress?

If you can think back to when Bush ran the past two times, fiscal conservatives were very concerned with this fiscal policies. Bush was NEVER a fiscal conservative. Anyone closely following US politics knows that. That's my BIGGEST issue with Bush.

The fact of the matter with this issue is that BOTH parties have put policies in place to cause this issue. And until our govt quits blaming the "greedy Wall Street types" - this issue cannot be fixed for good.

Jordan .

"Harry, I'm going to let you in on a little secret. Every day, once a day, give yourself a present. Don't plan it, don't wait for it, just let it happen. Could be a new shirt at the men's store, a catnap in your office chair, or two cups of good, hot, black coffee. Like this."  -Dale Cooper

Well. we are all socialists now. Yeah, coral(sp) the shit loans get a fucking price on them, and we use some of the execs from the CDO and the credit swaps "insurance " built on .03 cents on the dollar reserves! 'To catch a theif I' guess. 2009 better be the year of perp walks.

Oh, I'll play it as it lays and if there is any opportunity I will place my snout in the public trough. And thruth be known i was a go on the flawed rescue option. Looking in the eye of a possible depression I blinked.

Fucking Cancerous super government. control people under pretext.

"Do you think Obama is going to win the election fairly easily or do you think it will be closer than the experts think? I feel like Obama is going to win, but I don't have much faith in those polls where he is ahead so much since 90% of the media is liberal. The "silent majority" may come into play. Do you think this election is already over? Do you think any gamechangers will come to light before the election? "

We watched most of tonight's debate. I watched most of last week's debate. It was last week during the debate that I felt like it was over for McCain. I do believe it's going to still be close BUT not as close as i thought it was going to be a couple of months back in which I felt that it was up in the air.

The economic issues the past couple of weeks changed everythign -- for Obama. Not because the economy is the GOP's fault -- but rather that it is the GOP in the White House right now.

Still possible for a game changer? Oh yeah but unlikely - i think we've found the worst of Obama -- Wright, ACORN and Ayers! But the wind is at Obama's back right now. In reading/listening to conservative pundits over the past few weeks, sounds like they are closing the book on McCain. Even Bill Krystal right now on Fox News sounds as if he thinks that it's over for McCain.

Joe the Plumber probably ended up being more famous tonight than anything. I was surprised that his name came up so much! LOL! Brite Hume just reported that reporters have gotten a hold of Joe and said that he still thought Obama's policy would make him pay more in taxes but wouldn't say who he was going to vote for.

Jordan .