Study: Housing Collapse Steeper than during the Great Depression.

Discussion in 'Politics' started by Max E., Jun 15, 2011.

  1. Ok, this did not copy the numbers in my link above.
    So for this quote I write the numbers of the link.


    "For example, data compiled by the Commission for a subset of borrowers with
    similar credit scores -- scores below 660--show that by the end of 2008, GSE mortgages
    were far less likely to be seriously delinquent than were non-GSE securitized
    mortgages: 6.2% versus 28.3%."
     
    #41     Jun 15, 2011
  2. jem

    jem

    from your link...



    Citicorp and Travelers quietly lobby banking regulators and government officials for their support. In late March and early April, Weill makes three heads-up calls to Washington: to Fed Chairman Greenspan, Treasury Secretary Robert Rubin, and President Clinton. On April 5, the day before the announcement, Weill and Reed make a ceremonial call on Clinton to brief him on the upcoming announcement.

    The Fed gives its approval to the Citicorp-Travelers merger on Sept. 23. The Fed's press release indicates that "the Board's approval is subject to the conditions that Travelers and the combined organization, Citigroup, Inc., take all actions necessary to conform the activities and investments of Travelers and all its subsidiaries to the requirements of the Bank Holding Company Act in a manner acceptable to the Board, including divestiture as necessary, within two years of consummation of the proposal. ... The Board's approval also is subject to the condition that Travelers and Citigroup conform the activities of its companies to the requirements of the Glass-Steagall Act."



    1998-1999

    Intense new lobbying effort to repeal Glass-Steagall


    Following the merger announcement on April 6, 1998, Weill immediately plunges into a public-relations and lobbying campaign for the repeal of Glass-Steagall and passage of new financial services legislation (what becomes the Financial Services Modernization Act of 1999). One week before the Citibank-Travelers deal was announced, Congress had shelved its latest effort to repeal Glass-Steagall. Weill cranks up a new effort to revive bill.

    you have to understand.... new york banks have always been connected to democrats. republicans have to be bought off to favor banks. banks and dem leaders are the same people.

    citi other bank guys were/are a big part of the clinton and obama admins.



     
    #42     Jun 15, 2011
  3. A book review:

    Washington and Wall Street: The Revolving Door
    By ROBERT B. REICH
    Published: May 27, 2011

    It’s hardly news that the near meltdown of America’s financial system enriched a few at the expense of the rest of us. Who’s responsible? The recent report of the Financial Crisis Inquiry Commission blamed all the usual suspects — Wall Street banks, financial regulators, the mortgage giants Fannie Mae and Freddie Mac, and subprime lenders — which is tantamount to blaming no one. “Reckless Endangerment” concentrates on particular individuals who played key roles.

    The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O., James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly.

    To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress — contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self- protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives.

    All this gave Fannie’s executives free rein to underwrite far more loans, further enriching themselves and their shareholders, but at increasing risk to taxpayers as lending standards declined. A company called Countrywide Financial became Fannie’s single largest provider of home loans and the nation’s largest mortgage lender. Countrywide abandoned standards altogether, even doctoring loans to make applicants look creditworthy, while generating a fortune for its co-founder, Angelo R. Mozilo. Meanwhile, Wall Street banks received fat fees underwriting securities issued by Fannie and Freddie, and even more money providing lenders like Countrywide with lines of credit to expand their risky lending and then bundling the mortgages into securities they peddled to their clients. The Street, Morgenson and Rosner say, knew lending standards were declining but maintained the charade because it was so profitable. Goldman Sachs even used its own money to bet against the bundles — making huge profits off the losses of its clients on the very securities it had marketed to them. Eventually, of course, everything came crashing down.

    The authors are at their best demonstrating how the revolving door between Wall Street and Washington facilitated the charade. As Treasury secretary, Robert Rubin, formerly the head of Goldman Sachs, pushed for repeal of the Depression-era Glass-Steagall Act that had separated commercial from investment banking — a move that Sanford Weill, the chief executive of Travelers Group had long sought so that Travelers could merge with Citibank. After leaving the Treasury, Rubin became Citigroup’s vice chairman, and “over the following decade pocketed more than $100,000,000 as the bank sank deeper and deeper into a risky morass of its own design.” With Rubin’s protégé Timothy F. Geithner as its head, the New York Federal Reserve Bank reduced its oversight of Wall Street.

    A tight web of personal relationships connected Fannie, Goldman Sachs, Citigroup, the New York Fed, the Federal Reserve and the Treasury. In 1996, Fannie added Stephen Friedman, the former chairman of Goldman Sachs, to its board. In 1999, Johnson joined Goldman’s board. That same year Henry M. Paulson Jr. became the head of Goldman and was in charge when the firm created many of its most disastrous securities — while Geithner’s New York Fed looked the other way. As the Treasury secretary under George W. Bush, Paulson would oversee the taxpayer bailout of Fannie Mae, Freddie Mac, Goldman, Citigroup, other banks and the giant insurer American International Group (A.I.G), on which Goldman had relied. As head of the New York Fed, and then as the Treasury secretary, Geithner would also oversee the bailout.

    Morgenson and Rosner are irked that their key players got away with it. American taxpayers have so far shelled out $153 billion to keep Fannie and Freddie afloat and are still owed tens of billions from bailing out other financial institutions. Yet today James Johnson is a rich and respected member of Washington’s political establishment (although he was forced to resign from President-elect Obama’s advisory team after the press got wind of his cut-rate personal loans from Countrywide). Franklin Raines retired from Fannie with a generous bonus. Henry Paulson became a fellow at Johns Hopkins. Robert Rubin is affiliated with the Brookings Institution. Timothy Geithner remains Treasury secretary.

    “The failure to hold central figures accountable for their actions sets a dangerous precedent,” the authors say. “A system where perpetrators of such a crime are allowed to slip quietly from the scene is just plain wrong.” True up to a point — but Morgenson and Rosner don’t show that any actual crimes were committed. Their major characters surely exhibited outsize ambition and greed, but these qualities are not exactly rare in modern capitalism. Curiously absent from their book are some other prominent people who have been suspected of perpetrating fraud, like Richard S. Fuld Jr., who ran Lehman Brothers into the ground, and Joseph J. Cassano, the former head of the financial products unit at A.I.G.

    The real problem, which the authors only hint at, is that Washington and the financial sector have become so tightly intertwined that public accountability has all but vanished. The revolving door described in “Reckless Endangerment” is but one symptom. The extraordinary wealth of America’s financial class also elicits boundless cooperation from politicians who depend on it for campaign contributions and from a fawning business press, as well as a stream of honors from universities, prestigious charities and think tanks eager to reward their generosity. In this symbiotic world, conflicts of interest are easily hidden, appearances of conflicts taken for granted and abuses of public trust for personal gain readily dismissed.

    All told, the nation appears to have learned remarkably little from the near meltdown. Fannie and Freddie, now wards of the state, currently back more than half of all new mortgages, and their executives are still pocketing fortunes. Wall Street’s biggest banks are a fifth larger than they were when they got into trouble, and the pay packages of their top guns as generous. Although the rest of America has paid dearly, we seem more recklessly endangered than ever.
     
    #43     Jun 15, 2011
  4. Can you even dress yourself in the morning?
     
    #44     Jun 15, 2011
  5. Max E.

    Max E.

    Ouch, that one is going to leave a mark, and this article is from the far left economist Robert Reich no less...... Good find Bugscoe.

    I wonder how many high level democrats are going to have to admit that the democrats were also largely to blame before the liberals on this site quit denying it.

     
    #45     Jun 15, 2011
  6. And I think that review tried to play it easy. From what I've heard of the book (I haven't read it yet) it pretty much points the fingers at the democrats.

    We do have the obvious religious liberal fruit loops with their head in the sand here:

     
    #46     Jun 15, 2011
  7. "Without derivatives, the total losses from the spike in subprime mortgage
    defaults would have been relatively small and easily contained.
    Without derivatives, the increase in defaults would have hurt some, but
    not that much. The total size of subprime mortgage loans outstanding
    was well under a trillion dollars. The actual decline in the value of these
    loans during 2008 was perhaps a few hundred billion dollars at most.
    That is a lot of money, but it represents less than 1 percent of the actual
    market declines during 2008.
    Instead, derivatives multiplied the losses from subprime mortgage
    loans, through side bets based on credit default swaps. Still more credit
    default swaps, based on defaults by banks and insurance companies
    themselves, magnified losses on the subprime side bets. As investors
    learned about all of this side betting, they began to lose confidence in
    the system. When they looked at the banks’ financial statements, all
    they saw were vague and incomplete references to unregulated derivatives."
    http://www.frankpartnoy.com/_/F.I.A.S.C.O._files/Fiasco_AFTERWORD.pdf
     
    #47     Jun 15, 2011
  8. "The Federal Reserve engineered
    a private bailout of LTCM, but Greenspan resisted derivatives
    regulation. The derivatives lobby, led by Senator Phil Gramm and his
    wife Wendy, who initially had deregulated swaps in 1993 and had been
    a director of Enron since then, waited out the storm of criticism. Then,
    in late 2000, as the country rubbernecked at the Bush v. Gore election
    results, they and Greenspan persuaded President Clinton to perform his
    last official act, signing the Commodity Futures Modernization Act of
    2000. Greenspan, Rubin, and Levitt all supported this sweeping deregulation
    of derivatives. It was one the greatest mistakes in the history of
    financial markets."




    " According to the math, huge amounts of risk disappeared when you
    pooled risky assets together in a CDO. As a result, a large share of the
    pooled investment could be rated AAA. Word spread about this result
    like a game of telephone. Mathematicians explained the model to
    derivatives structurers, who explained the model to rating agency analysts,
    who explained the model to salespeople, who explained the
    model to investors. By the end, the message had warped from logarithmic
    functions and negative infinity symbols, to fat tails and low correlations,
    to simply “AAA, pass it on.”
    Wall Street derivatives arrangers trolled for risky assets to pool using
    the new methodology. Banks created hundreds of billions of dollars of
    new CDOs backed by low-rated corporate bonds, emerging markets
    debt, and subprime mortgage loans. They split the CDOs into levels, or
    tranches, based on the seniority of claims. The tranches were like the
    floors of a building built in a flood plain. The lowest floors were the
    riskiest and would be flooded with losses first. The middle levels were
    protected by the lower levels. The highest floors seemed very safe. It
    would take a perfect storm to flood them. Or at least that was what the
    mathematical models said.
    The rating agencies, primarily S&P and Moody’s, were willing to
    rate many CDO tranches AAA, even though the underlying assets
    already carried much lower ratings—from them. In their eyes, the models
    could magically transform a pool of BBB-rated subprime mortgage
    loans into a somewhat smaller pool of AAA-rated CDO investments.
    These AAA ratings were nearly as preposterous as the AAA ratings for
    FP Trust, but the rating agencies’ mathematical models, including a
    264 F. I. A. S. C. O.
    version of Li’s copula, better hid the dubious nature of the ratings. The
    crap had become cake. Investors either believed the ratings or ignored
    the ratings’ unreasonable bases (as well as the fact that the banks paid
    the rating agencies triple their usual fees for these ratings). The CDO
    business boomed and became the most profitable part of Wall Street.
    When mortgage lenders such as New Century Financial Corporation
    and Countrywide Financial saw the insatiable demand for risky loans,
    they began making too-good-to-be-true loan offers to anyone they
    could find. Many people have criticized these lenders for unscrupulous
    practices. Others have criticized borrowers for taking loans they couldn’t
    possibly repay. Much of that criticism is fair, but it ignores the big
    picture. The driving force behind the explosion of subprime mortgage
    lending in the U.S. was neither lenders nor borrowers. It was the
    arrangers of CDOs. They were the ones supplying the cocaine. The
    lenders and borrowers were just mice pushing the button."
    ---------------------------------------------------------------------------------



    AGAIN:



    "Wall Street derivatives arrangers trolled for risky assets to pool using
    the new methodology. Banks created hundreds of billions of dollars of
    new CDOs backed by low-rated corporate bonds, emerging markets
    debt, and subprime mortgage loans. They split the CDOs into levels, or
    tranches, based on the seniority of claims.-----------------------------------------------------------------------------------------------------------------

    http://www.frankpartnoy.com/_/F.I.A.S.C.O._files/Fiasco_AFTERWORD.pdf


    "
     
    #48     Jun 15, 2011
  9. What needed to happen first for Wall Street to get involved?
     
    #49     Jun 15, 2011
  10.  
    #50     Jun 15, 2011