Greenspan: The Congress Was Responsible

Would you be in favor of auditing the Fed? The lack of transparency, particularly at the New York Fed, leads me to believe the financial playing field in anything but level.

Just recently the Valukas report on the Lehman bankruptcy raises the possibility that the New York Fed, and Timothy Geithner, "...were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations."

In this economic system the money seems to be absorbed into fewer and fewer hands with each passing generation. Soon being smarter than your competitor won't be enough to survive.

if a public audit would give rise to international scrutiny of the dollar and other aspects of our monetary policy, which it likely will, than mere competition between businesses trading goods and services for dollars would be compromised. im not one for rocking the boat i make my living on at the behest of some opportunist economists who make their living getting you riled up.

do you see the other major central banks getting these audits? are you american?
 
There's too many of you who seem to have a real problem recognizing the role that cheap credit played in this mess.

How do you avoid the 1% interest rate we had early on in the decade, and the otherwise extremely low rates that were allowed to stay so low for so long thereafter?

1% fed funds rate = banks offer cheaper consumer loans.

As that rate rises, so does the price of consumer loans. Leave it low, and more people will borrow.

This doesn't mean there weren't other factors at play, but nothing else could possibly have contributed to the underlying demand for credit as much as the low rates did.

You are another first class idiot!

We have even lower interest rates now than at any time during Greenspans tenure, yet there are fewer loans being made. This is because lending standards are to high. The cause of the housing bubble was not the low rates, but the relaxed lending standards due to the GSEs & CRA.
Don't forget Junior's contribution to the housing bubble.

From the December, 2003 signing ceremony for the American Dream Downpayment Act here's Dubya doing his part in the class war:

"The rate of homeownership in America now stands at a record high of 68.4%. Yet there is room for improvement. The rate of homeownership amongst minorities is below 50%. And that's not right, and this country needs to do something about it.

"We need to close the minority home ownership gap in America so more citizens get the satisfaction and mobility that comes from owning your own home, from owning a piece of America."

The GSEs and CRA provided the inspiration that allowed Wall Street, the Fed, and political whores in both corporate parties to con minorities and others into believing the subprime fiasco would deliver the "American Dream."

The Senate Permanent Subcommittee on investigations has recently released mountains of evidence documenting Washington Mutual intentionally issuing subprime mortgages they knew would fail, then bundling those same toxic mortgages into securities they could sell to investors.

From the Tuesday, April 13, 2010 LA Times:

"Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river...Using a toxic mix of high risk lending, lax controls, destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad...

"As the debate on financial reform begins, it is critical to acknowledge the financial crisis was not a natural disaster, it was a man-made economic assault."
 
Since interest rates were kept so very low, and money was sooooooo cheap for the banks, WHY DID THE BANKS have to take this money and loan it out on a SUBPRIME/Adjustable mortgage manner?

What kind of money did they make issuing a SUB PRIME mortgages that balooned or adjusted in a few years? WHY did they go this route vs. just charging a percentage or 2 higher interest rate for those who were at higher risk, instead of the CRAP balloon and adjustable rate, and only interest paid mortgages? I guess MORE MONEY was to be made by them....

I'm sorry, but the Banks DICKED themselves......The Feds dicked themselves....Fanny and freddie dicked themselves...AIG dicked themselves.......etc etc etc.......by their OWN decisions....no one FORCED everything upon them...they MADE CHOICES and their own bed.

This was a multitude of BAD DECISIONS on EVERYONE'S hands that were in this Bubble and everyone is trying to put the blame ELSEWHERE....and that is just plain wrong and typical.....

The Banks were wrong
the Mortgage Companies were wrong
the Mega Insurance companies were wrong
The Fed was wrong
the fed Agencies and regulations were wrong
The Rating's Agencies were Wrong...

Just enough wrongs spread around that the whole world fell to its knees.
 
Would you be in favor of auditing the Fed? The lack of transparency, particularly at the New York Fed, leads me to believe the financial playing field in anything but level.

Just recently the Valukas report on the Lehman bankruptcy raises the possibility that the New York Fed, and Timothy Geithner, "...were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations."

In this economic system the money seems to be absorbed into fewer and fewer hands with each passing generation. Soon being smarter than your competitor won't be enough to survive.

if a public audit would give rise to international scrutiny of the dollar and other aspects of our monetary policy, which it likely will, than mere competition between businesses trading goods and services for dollars would be compromised. im not one for rocking the boat i make my living on at the behest of some opportunist economists who make their living getting you riled up.

do you see the other major central banks getting these audits? are you american?
Are you a slave?

Has it ever occurred to you that some of your "shipmates" (who were richer at the moment of their birth than you will ever be) will eventually absorb your personal wealth with as much indifference as they displayed for sub-prime victims?
 
Since interest rates were kept so very low, and money was sooooooo cheap for the banks, WHY DID THE BANKS have to take this money and loan it out on a SUBPRIME/Adjustable mortgage manner?

What kind of money did they make issuing a SUB PRIME mortgages that balooned or adjusted in a few years? WHY did they go this route vs. just charging a percentage or 2 higher interest rate for those who were at higher risk, instead of the CRAP balloon and adjustable rate, and only interest paid mortgages? I guess MORE MONEY was to be made by them....

I'm sorry, but the Banks DICKED themselves......The Feds dicked themselves....Fanny and freddie dicked themselves...AIG dicked themselves.......etc etc etc.......by their OWN decisions....no one FORCED everything upon them...they MADE CHOICES and their own bed.

This was a multitude of BAD DECISIONS on EVERYONE'S hands that were in this Bubble and everyone is trying to put the blame ELSEWHERE....and that is just plain wrong and typical.....

The Banks were wrong
the Mortgage Companies were wrong
the Mega Insurance companies were wrong
The Fed was wrong
the fed Agencies and regulations were wrong
The Rating's Agencies were Wrong...

Just enough wrongs spread around that the whole world fell to its knees.

Open your eyes. You are saying all the smartest people in the country made bad decisions. This was an orchestrated event. All these big bankers are back at work making even more now than they made then. The Federal Reserve is paying 100% to the big banks for these loans. This was an agreement between government & bankers to get all the savers & tax payers to pay for bad mortgages.
 
Since interest rates were kept so very low, and money was sooooooo cheap for the banks, WHY DID THE BANKS have to take this money and loan it out on a SUBPRIME/Adjustable mortgage manner?

What kind of money did they make issuing a SUB PRIME mortgages that balooned or adjusted in a few years? WHY did they go this route vs. just charging a percentage or 2 higher interest rate for those who were at higher risk, instead of the CRAP balloon and adjustable rate, and only interest paid mortgages? I guess MORE MONEY was to be made by them....

I'm sorry, but the Banks DICKED themselves......The Feds dicked themselves....Fanny and freddie dicked themselves...AIG dicked themselves.......etc etc etc.......by their OWN decisions....no one FORCED everything upon them...they MADE CHOICES and their own bed.

This was a multitude of BAD DECISIONS on EVERYONE'S hands that were in this Bubble and everyone is trying to put the blame ELSEWHERE....and that is just plain wrong and typical.....

The Banks were wrong
the Mortgage Companies were wrong
the Mega Insurance companies were wrong
The Fed was wrong
the fed Agencies and regulations were wrong
The Rating's Agencies were Wrong...

Just enough wrongs spread around that the whole world fell to its knees.
"The whole world fell to its knees" and trillions of dollars of wealth evaporated.
Or did it?
Apparently what we're living through is the greatest transfer of wealth in history.

During the first full year of our Great Crisis working Americans lost 25% off their 401k while the richest 400 Americans saw their wealth increase by $30 billion.

Today, in the "Land of the Free," 400 people have more wealth than 155 million people combined.

This is not by accident. Wall Street, the Pentagon and the Fed, Obama or Palin..., Congress, and SCOTUS all serve the same RICH master.

If enough Americans decide to FLUSH the DC Toilet next November by voting AGAINST every Republican AND Democratic INCUMBENT on their ballots, then we'll all begin to see Change Worth Believing In.
 
Since interest rates were kept so very low, and money was sooooooo cheap for the banks, WHY DID THE BANKS have to take this money and loan it out on a SUBPRIME/Adjustable mortgage manner?

What kind of money did they make issuing a SUB PRIME mortgages that balooned or adjusted in a few years? WHY did they go this route vs. just charging a percentage or 2 higher interest rate for those who were at higher risk, instead of the CRAP balloon and adjustable rate, and only interest paid mortgages? I guess MORE MONEY was to be made by them....

I'm sorry, but the Banks DICKED themselves......The Feds dicked themselves....Fanny and freddie dicked themselves...AIG dicked themselves.......etc etc etc.......by their OWN decisions....no one FORCED everything upon them...they MADE CHOICES and their own bed.

This was a multitude of BAD DECISIONS on EVERYONE'S hands that were in this Bubble and everyone is trying to put the blame ELSEWHERE....and that is just plain wrong and typical.....

The Banks were wrong
the Mortgage Companies were wrong
the Mega Insurance companies were wrong
The Fed was wrong
the fed Agencies and regulations were wrong
The Rating's Agencies were Wrong...

Just enough wrongs spread around that the whole world fell to its knees.

Open your eyes. You are saying all the smartest people in the country made bad decisions. This was an orchestrated event. All these big bankers are back at work making even more now than they made then. The Federal Reserve is paying 100% to the big banks for these loans. This was an agreement between government & bankers to get all the savers & tax payers to pay for bad mortgages.

No Kiss, you need to open your eyes....

The Banks and mortgage companies CREATED the BAD mortgages and the Banks created a means to HIDE THEM, in Mortgaged Back securities and CDO's...

The Mega Insurance companies CHOSE to back them all on their own...

NO ONE held a gun to their heads and YES, all of these ceo's made selfish and short term decisions that were BAD BUSINESS DECISIONS....I don't care how smart you think they are....

And it should NOT be up to the government to remove these people from their jobs, the stock holders in the company should do so through their board members....

It is bulloney to place this Disaster in to the hands of one....when every spoke in this bubble, made their decisions based on instant GREED, instead of the soundness of their company and its future...
 
We were warned by this New York Times article published on September 30, 1999. This was even before Clinton signed into law the bill that removes Glass Steagall
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, 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.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

CRS Report for Congress
In 2008, Fannie and Freddie have purchased about 80% of all new home mortgages in the United States. Their combined investment portfolios held mortgage assets (loans and MBSs) valued at $1.5 trillion (as of June 30, 2008)

"A September 1999 study by Freddie Mac, confirming earlier Federal Reserve and FDIC studies, contradicts race discrimination arguments for CRA. The study found that African-Americans with annual incomes of $65,000-$75,000 have on average worse credit records than whites making under $25,000. This showed that the difficulty in qualifying was not because of race but bad credit records. Accordingly, the Federal Reserve Bank of Dallas entitled a paper "Red Lining or Red Herring?" This was before President Bill Clinton signed those disasterous CRA deregulation bills into law. Clinton was a fucking retard!
[ame="http://www.youtube.com/watch?v=ivmL-lXNy64"]Affirmative Action Lending[/ame]

Notice the date housing prices spiked

case-shiller-chart-updated.png


U.S. House of Representatives Committee on Oversight and Government Reform
The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities for more Americans. This intervention began with two government-backed corporations, Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, creating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses.

Obama - "Subprime lending started off as a good idea - helping Americans buy homes who couldn’t previously afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors around the country and around the world. In theory, this should have allowed mortgage lending to be less risky and more diversified." Banks were the Top Contributors to Barack Obama's Campaign

Obama - "difficult to imagine that the inability of somebody to pay for a house in Florida could contribute to the failure of the banking system in Iceland."
 
CRA...Community reinvestment act....mortgages issued in these areas that are in foreclosure amounts to about 6-10% of the subprime mortgages in default/foreclosure.

90% of the subprime loans involved in this crisis were issued to middle class Americans in areas NOT COVERED by the CRA.

THAT ALONE, DISPROVES your contention in the post above, Kissmy.
 
Without government interference it's MUCH less likely that we would have seen interest rates as low as they were after the dot-com bubble.

Without Government Intervention, we probably never would have had the dot-com bubble in the first place - or its impact would have been much less significant.

Money seeks assets. Bigger government, a loose money policy, and the Y2K Technology Mandate created a tech rush financed with Money Seeking Assets.

money seeks investment. i think that had real assets been involved there wouldnt have been as much an investment bubble as we had in 99.

We would not have had a bubble without the Internet, simple as that. There is no doubt that a fairly loose policy contributed to Tech Bubble, but the Tech Bubble was primarily about the Internet.

Bubbles are often created by exogenous shocks, particularly those that lower cost curves, which is usually triggered by new inventions and technologies. When costs are lowered across the country, return on equity rises. When return on equity rises, entrepreneurs and investors believe this to be a permanent rise, and pour capital into the higher returning industry. This creates distortions in the pricing mechanisms and mal-investment in the economy as excesses are created. Eventually, usually triggered by tightening credit, the whole structure comes crashing down as revenues are insufficient to cover costs of capital. This has happened over and over and over again, from railways and canals 200 years ago to the Internet in our lifetime.

The Fed, however, was the primary culprit of the Housing Bubble as its policies in response to the collapsing Tech Bubble lead to cheap money flooding real estate.
 
As of last month (March 23rd) Fannie and Freddie had already raked in $125 billion in taxpayer charity and the CBO estimates their total tab will reach $380 billion.

Beginning in 2006 and 2007 internal decisions at Fannie and Freddie resulted in the two GSEs amassing over $1 trillion worth of sub-prime and other risky mortgages "---many of which were branded "alternative," because they did not meet the rules set by Fannie and Freddie."

Given their inherently contradictory missions was it inevitable Fannie and Freddie would jump on the sub-prime express?

"For forty years they functioned as publicly traded companies controlled by shareholders who demanded profits. But they also operate under a congressional charter, as government sponsored enterprises, to keep credit flowing in minority and low income communities.

"The charter also carried an implicit guarantee that if the companies got into trouble, the taxpayer would bail them out."

Prior to 2006 Fannie and Freddie owned or guaranteed half of new mortgages. After initially resisting sub-prime debt, Wall Street banks dropped the GSEs market share of all new mortgages to 37% in 2006.

"They decided to rev up their buying and guaranteeing of risky mortgages. This decision restored their market share but helped destroy the companies."
 
Fannie and freddie were stupid to buy those mortgages AFTER THE MARKET for housing ALREADY PEAKED.....the housing market peaked in june of 2006 is what i believe i have read....

All of those earlier subprime mortgages in 2000-2006 when we began the housing boom and ended it, were issued by banks and mortgage companies NOT EXPECTING Fannie or freddie being able to buy them from them....even fannie was NOT SUPPOSE TO buy up those subprime mortgages from those banks and had to label them "alternative" mortgages....so the article said...
 
Fannie and freddie were stupid to buy those mortgages AFTER THE MARKET for housing ALREADY PEAKED.....the housing market peaked in june of 2006 is what i believe i have read....

All of those earlier subprime mortgages in 2000-2006 when we began the housing boom and ended it, were issued by banks and mortgage companies NOT EXPECTING Fannie or freddie being able to buy them from them....even fannie was NOT SUPPOSE TO buy up those subprime mortgages from those banks and had to label them "alternative" mortgages....so the article said...
"The great economic fight of our epoch is being waged by the FIRE sector-finance, insurance, and real estate-against the industrial economy and consumers. Its objective is to maximize property prices and the volume of debt relative to what labor and industry are able to earn.

"Rising debts and real estate prices go together, because asset prices depend on how much banks will lend. For creditors the dream is to obtain an ultimate backup at public expense: government insurance that they will not lose when debtors are unable to pay."

Michael Hudson notes in his article that even the Wall Street Journal has noticed the "socialism for the rich" aspects of our bailouts; that is, privatizing the profits and socializing the loss.

"But when has government been anything else, for thousands of years before anyone coined the term "socialism."
 
Ex-GSE Insiders Debate the Future of Fannie, Freddie
In Congress, Republicans generally believe that Fannie Mae and Freddie Mac led the charge in the booming subprime business and were major drivers of the system’s failure. The Democratic line of thought is that Wall Street (and the private MBS market) was the main force behind the subprime explosion, and that the GSEs were lured into it long after it had blossomed.

But ask Pinto, and he'll say the Federal Housing Enterprise Safety and Soundness Act of 1992, which freed up the GSEs to compete with the FHA on single-family housing business, was the main culprit. Within a year of the Act, the GSEs were lending at 97 percent loan-to-value (LTV), which eventually led to “no money down” loans. “Leverage became the name of the game,” Pinto said. “They were doing 3 percent down loans, zero-down loans, and the private sector started following. But what really transpired was the politicization of lending.”

The affordable housing goals that HUD instituted in 2000 also contributed to this politicization, according to Pinto. “I call it reverse earmarks, which is what it really became,” Pinto said. “Congress got enamored with the trillions of dollars that Fannie and Freddie could bring to affordable housing, and Congressional members got credit for it, and that’s really what poisoned the well.”

But according to White and Booher, it was a broader cultural issue, an unbalanced federal housing policy that stressed homeownership at the expense of rational underwriting. “I believe that the deception of our culture, that money grows on trees, that there can be action and no reaction, is so prevalent that we live in a fantasy world,” White said. “And members of Congress were the ultimate actors there.”

That unbalanced housing policy was prevalent on the operations side as well. "The problem really starts with a culture that’s increasingly looking for something for nothing,” Durkin of Wood Partners explained. “That permeates our housing policy.”
 

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