Private sector loans, not Fannie or Freddie, triggered crisis

WASHINGTON — 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.Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.Federal Reserve Board data show that:_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions._ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year._ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages."I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems."Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

McClatchy Washington Bureau | 10/11/2008 | Private sector loans, not Fannie or Freddie, triggered crisis

The great heist

Taxpayers will pay for bailout failure | coloradoan.com | The Coloradoan,

 

http://www.coloradoan.com/apps/pbcs.dll/article?AID=/20081010/COLUMNISTS91/810100320/1014/OPINION

Is Henry Paulson a crony communist or a businessman? The answer could be the difference between economic disaster and recovery. Understanding Paulson's role in stopping - or fueling - the credit crisis requires a review of two axioms from Economics 101: 1) A credit crisis occurs when banks stop lending, and 2) The amount banks can lend is a multiple of the capital in their vaults. Therefore, ending a credit crisis means prompting new lending - and that means maximally increasing bank capital. Enter Paulson, the former Goldman Sachs executive and Treasury secretary. The bailout he fearmongered through Congress aims to waste almost a trillion taxpayer dollars buying banks' bad mortgages - a scheme all but ensuring a disastrous outcome. If Paulson pays banks exactly what their mortgages are worth, he will not increase banks' capital (or their lending ability) - he merely will convert one asset (mortgages) into another (cash), making no impact on the credit crisis. If, to protect taxpayers, he buys mortgages at lower prices than banks list them, banks will have to write down their capital and consequently contract lending - and the credit crisis will worsen. If Paulson overpays for mortgages, he may marginally augment bank capital, but also incur massive taxpayer losses when he later resells the mortgages at their real price.

Your Tax dollars at work

If you want to stop this sort of excess, vote out every incumbent who has deregulated our financial system since the 80's.  How do you know who they are?  They are all of the republicans and all of the establishment democrats like Clinton, Schumer, Frank, etc.. you know them when you see how they vote in favor of the corporate elite and against the working masses.  There are no meaningful R's or D's in front of their names in reality, only C's for the corporatists that they are.  Look for those who vote to give immunity to the telecoms who spied on americans.  Look for those who voted for this war that has enriched the military industrial complex.  look for those who voted for this bail out the first time around before it had any protection for the american tax payer in it.  I wish i could say, look for all of those who voted for this bail out but now i read that congress was being threatened with martial law if they didn't pass this bail out.  still, there were brave men and women, who did not vote for this redistribution of our wealth to the richest individuals and corporations in the world.  look for them too.

WASHINGTON - Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company's meltdown.ADVERTISEMENTAIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.The retreat didn't include anyone from the financial products division that nearly drove AIG under, but lawmakers still were enraged over thousands of dollars spent on outing for executives of AIG's main U.S. life insurance subsidiary."Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," the committee's chairman, Rep. Henry Waxman, D-Calif., scolded the company during a lengthy opening statement at a hearing Tuesday. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

Execs' posh retreat after bailout angers lawmakers - Yahoo! News

Martial Law in America

Will you be the soldier who will pull arms on your fellow Americans when they rise up against a corrupt government?

Thousands of Troops Are Deployed on U.S. Streets Ready to Carry Out "Crowd Control"

By Naomi Wolf, AlterNet. Posted October 8, 2008.

Members of Congress were told they could face martial law if they didn't pass the bailout bill. This will not be the last time.

Background:   the First Brigade of the Third Infantry Division, three to four thousand soldiers, has been deployed in the United States as of October 1. Their stated mission is the form of crowd control they practiced in Iraq, subduing "unruly individuals," and the management of a national emergency. I am in Seattle and heard from the brother of one of the soldiers that they are engaged in exercises now. Amy Goodman reported that an Army spokesperson confirmed that they will have access to lethal and non lethal crowd control technologies and tanks.

George Bush struck down Posse Comitatus, thus making it legal for military to patrol the U.S. He has also legally established that in the "War on Terror," the U.S. is at war around the globe and thus the whole world is a battlefield. Thus the U.S. is also a battlefield.

He also led change to the 1807 Insurrection Act to give him far broader powers in the event of a loosely defined "insurrection" or many other "conditions" he has the power to identify. The Constitution allows the suspension of habeas corpus -- habeas corpus prevents us from being seized by the state and held without trial -- in the event of an "insurrection." With his own army force now, his power to call a group of protesters or angry voters "insurgents" staging an "insurrection" is strengthened.

U.S. Rep. Brad Sherman of California said to Congress, captured on C-Span and viewable on YouTube, that individual members of the House were threatened with martial law within a week if they did not pass the bailout bill:

"The only way they can pass this bill is by creating and sustaining a panic atmosphere. … Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand on the second day, and a few members were even told that there would be martial law in America if we voted no."

If this is true and Rep. Sherman is not delusional, I ask you to consider that if they are willing to threaten martial law now, it is foolish to assume they will never use that threat again. It is also foolish to trust in an orderly election process to resolve this threat. And why deploy the First Brigade? One thing the deployment accomplishes is to put teeth into such a threat.

I interviewed Vietnam veteran, retired U.S. Air Force Colonel and patriot David Antoon for clarification:

"If the President directed the First Brigade to arrest Congress, what could stop him?"

"Nothing. Their only recourse is to cut off funding. The Congress would be at the mercy of military leaders to go to them and ask them not to obey illegal orders."

"But these orders are now legal?'"

"Correct."

"If the President directs the First Brigade to arrest a bunch of voters, what would stop him?"

"Nothing. It would end up in courts but the action would have been taken."

"If the President directs the First Brigade to kill civilians, what would stop him?"

"Nothing."

"What would prevent him from sending the First Brigade to arrest the editor of the Washington Post?"

"Nothing. He could do what he did in Iraq -- send a tank down a street in Washington and fire a shell into the Washington Post as they did into Al Jazeera, and claim they were firing at something else."

"What happens to members of the First Brigade who refuse to take up arms against U.S. citizens?"

"They'd probably be treated as deserters as in Iraq: arrested, detained and facing five years in prison. In Iraq a study by Ann Wright shows that deserters -- reservists who refused to go back to Iraq -- got longer sentences than war criminals."

"Does Congress have any military of their own?"

"No. Congress has no direct control of any military units. The Governors have the National Guard but they report to the President in an emergency that he declares."

"Who can arrest the President?"

"The Attorney General can arrest the President after he leaves or after impeachment."

[Note: Prosecutor Vincent Bugliosi has asserted it is possible for District Attorneys around the country to charge President Bush with murder if they represent districts where one or more military members who have been killed in Iraq formerly resided.]

"Given the danger do you advocate impeachment?"

"Yes. President Bush struck down Posse Comitatus -- which has prevented, with a penalty of two years in prison, U.S. leaders since after the Civil War from sending military forces into our streets -- with a 'signing statement.' He should be impeached immediately in a bipartisan process to prevent the use of military forces and mercenary forces against U.S. citizens"

"Should Americans call on senior leaders in the Military to break publicly with this action and call on their own men and women to disobey these orders?"

"Every senior military officer's loyalty should ultimately be to the Constitution. Every officer should publicly break with any illegal order, even from the President."

"But if these are now legal. If they say, 'Don't obey the Commander in Chief,' what happens to the military?"

"Perhaps they would be arrested and prosecuted as those who refuse to participate in the current illegal war. That's what would be considered a coup."

"But it's a coup already."

"Yes."

McCain tied to Iran-Contra group - John McCain News- msnbc.com

WASHINGTON - GOP presidential nominee John McCain has past connections to a private group that supplied aid to guerrillas seeking to overthrow the leftist government of Nicaragua in the Iran-Contra affair.McCain's ties are facing renewed scrutiny after his campaign criticized Barack Obama for his link to a former radical who engaged in violent acts 40 years ago.The U.S. Council for World Freedom was part of an international organization linked to former Nazi collaborators and ultra-right-wing death squads in Central America. The group was dedicated to stamping out communism around the globe.
The council's founder, retired Army Maj. Gen. John Singlaub, said McCain became associated with the organization in the early 1980s as McCain was launching his political career in Arizona. Singlaub said McCain was a supporter but not an active member in the group.

'New guy on the block'
"McCain was a new guy on the block learning the ropes," Singlaub told The Associated Press in an interview. "I think I met him in the Washington area when he was just a new congressman. We had McCain on the board to make him feel like he wasn't left out. It looks good to have names on a letterhead who are well-known and appreciated.

"I don't recall talking to McCain at all on the work of the group," Singlaub said.

The renewed attention over McCain's association with Singlaub's group comes as McCain's campaign steps up criticism of Obama's dealings with William Ayers, a college professor who co-founded the Weather Underground and years later worked on education reform in Chicago alongside Obama. Ayers held a meet-the-candidate event at his home when Obama first ran for public office in the mid-1990s.

Obama was roughly 8 years old when Ayers, now at the University of Illinois at Chicago, was working with the Weather Underground, which took responsibility for bombings that included nonfatal blasts at the Pentagon and U.S. Capitol. McCain's vice presidential nominee, Sarah Palin, has said that Obama "pals around with terrorists."

In McCain's case, Singlaub knew McCain's father, a Navy admiral who had sought Singlaub's counsel when McCain, a Navy pilot, became a prisoner of war and spent 5 1/2 years in North Vietnamese hands.

"John's father asked me for advice about what he ought to do now that his son had been shot down and captured," Singlaub recalled in one of two recent interviews. "I said, 'As long as you don't give any impression that you care more about him than you care about any of the other prisoners, he won't be treated any differently.'"

Covert arms shipments
Covert arms shipments to the rebels called Contras, financed in part by secret arms sales to Iran, became known as the Iran-Contra affair. They proved to be the undoing of Singlaub's council.

In 1987, the Internal Revenue Service withdrew the tax-exempt status of Singlaub's group because of its activities on behalf of the Contras.

Elected to the House in 1982 and at a time when he was on the board of Singlaub's council, McCain was among Republicans on Capitol Hill expressing support for the Contras, a CIA-organized guerrilla force in Central America. In 1984, Congress cut off CIA funds for the Contras.

Months before the cutoff, top Reagan administration officials ramped up a secret White House-directed supply network and put National Security Council aide Oliver North in charge of running it. The goal was to keep the Contras operational until Congress could be persuaded to resume CIA funding.

The council's founder, retired Army Maj. Gen. John Singlaub, said McCain became associated with the organization in the early 1980s as McCain was launching his political career in Arizona. Singlaub said McCain was a supporter but not an active member in the group.

'New guy on the block'
"McCain was a new guy on the block learning the ropes," Singlaub told The Associated Press in an interview. "I think I met him in the Washington area when he was just a new congressman. We had McCain on the board to make him feel like he wasn't left out. It looks good to have names on a letterhead who are well-known and appreciated.

"I don't recall talking to McCain at all on the work of the group," Singlaub said.

The renewed attention over McCain's association with Singlaub's group comes as McCain's campaign steps up criticism of Obama's dealings with William Ayers, a college professor who co-founded the Weather Underground and years later worked on education reform in Chicago alongside Obama. Ayers held a meet-the-candidate event at his home when Obama first ran for public office in the mid-1990s.

Obama was roughly 8 years old when Ayers, now at the University of Illinois at Chicago, was working with the Weather Underground, which took responsibility for bombings that included nonfatal blasts at the Pentagon and U.S. Capitol. McCain's vice presidential nominee, Sarah Palin, has said that Obama "pals around with terrorists."

In McCain's case, Singlaub knew McCain's father, a Navy admiral who had sought Singlaub's counsel when McCain, a Navy pilot, became a prisoner of war and spent 5 1/2 years in North Vietnamese hands.

"John's father asked me for advice about what he ought to do now that his son had been shot down and captured," Singlaub recalled in one of two recent interviews. "I said, 'As long as you don't give any impression that you care more about him than you care about any of the other prisoners, he won't be treated any differently.'"

Covert arms shipments
Covert arms shipments to the rebels called Contras, financed in part by secret arms sales to Iran, became known as the Iran-Contra affair. They proved to be the undoing of Singlaub's council.

In 1987, the Internal Revenue Service withdrew the tax-exempt status of Singlaub's group because of its activities on behalf of the Contras.

Elected to the House in 1982 and at a time when he was on the board of Singlaub's council, McCain was among Republicans on Capitol Hill expressing support for the Contras, a CIA-organized guerrilla force in Central America. In 1984, Congress cut off CIA funds for the Contras.

Months before the cutoff, top Reagan administration officials ramped up a secret White House-directed supply network and put National Security Council aide Oliver North in charge of running it. The goal was to keep the Contras operational until Congress could be persuaded to resume CIA funding.

Singlaub's private group became the public cover for the White House operation.

Secretly, Singlaub worked with North in an effort to raise millions of dollars from foreign governments.

McCain resignation?
McCain has said previously he resigned from the council in 1984 and asked in 1986 to have his name removed from the group's letterhead.

"I didn't know whether (the group's activity) was legal or illegal, but I didn't think I wanted to be associated with them," McCain said in a newspaper interview in 1986.

Singlaub does not recall any McCain resignation in 1984 or May 1986. Nor does Joyce Downey, who oversaw the group's day-to-day activities.

"That's a surprise to me," Singlaub said. "This is the first time I've ever heard that. There may have been someone in his office communicating with our office."

"I don't ever remember hearing about his resigning, but I really wasn't worried about that part of our activities, a housekeeping thing," said Singlaub. "If he didn't want to be on the board that's OK. It wasn't as if he had been active participant and we were going to miss his help. He had no active interest. He certainly supported us."

McCain tied to Iran-Contra group - John McCain News- msnbc.com