Fannie and Freddie.

The programs offered through Fannie and Freddie did well over almost forty years and the total benefits far outweighed the collapse in the last decade. 
The President needs to step forward with his plan and not wait for the legislature to develop one. This has been a mistake throughout his presidency. He removes himself from a leadership position.
The two lending agencies should only be in business of insuring loans and not holding the actual asset. The ability to hold mortgages caused theses companies to play the dangerous game of betting on the movement of interest rates. When this game is played greed sets in and that is when mistakes are made.

In the nineties their reserve requirements were reduced and that was a mistake. When the programs are started again the underwriting standards need to be stronger than they were at the time of failing.  Prior to the collapse both organizations loosened their requirements too far.

Fannie and Freddie need to revert back to the FHA model and not be reconstituted as private entities with shareholders. The result of making both companies shareholder owned and listed on stock exchanges.caused the their leadership to take too much risk to increase the price of their stock and increase their personal bonuses that was tied to profitability. 

Great Bank Heist!

During the period leading up to the collapse of the economy that reached a crescendo in the fall of 2008, we got trapped into thinking bad credit decisions could be overcome with good collateral. Those of us tied to the mortgage industry saw the poor loan underwriting that added , or maybe even created, the housing bubble.

The mortgage broker did not look beyond his own wallet. The loan he originated smelled but if the loan servicer that he sold the loan to was willing to pay a good price, what did he care. 
The loan servicer had to wear a gas mask to protect himself from the stench of the loan he just purchased, but if Goldman Sachs was willing to purchase it from him at a good price, what did he care. The loan servicer unloaded the risk and made a good profit.
Goldman did not care about the smell of the loan because they were able to buy an investment grade rating from the rating agencies and sell the loans to their clients including wealthy individuals, pension funds and financial institutions around the world. In the process they made a lot of money and were bailed out by our politicians in Washington.
The Washington Politicians did not care because they received big campaign contributions from all entities involved in the transaction and they figured the voter was too stupid to figure out that they were the ones stuck with the resulting calamity.
So far it appears Wall Street and the politicians were right. Their heist worked and we are stuck with the bill.

Mortgages and Overregulating

“New federal regulations require mortgage lenders to do what should go without saying: verify that prospective borrowers can pay…. An “ability-to-repay” rule, adopted last month by the Consumer Financial Protection Bureau and effective January 2014, is intended to protect borrowers from again falling victim to risky lending.” New Standards For Safe Loans, February 10, 2012

This an example of the government passing a new regulation where existing rules already exists but without government enforcing them. Regulators need to identify and punish those who break existing laws so their peers have an incentive to obey the rules. There should be people going to prison. Instead of paying bonuses, financial institutions should be paying retribution to those in society that were unjustifiably harmed by their malicious and intentional wrong doing.

The Federal Deposit Insurance Corporation (FDIC) for more than a half century has rules that require a bank to do its best to make safe and sound investments. A loan that is not properly underwritten is not a safe and sound investment.

The Securities Exchange Commission (SEC) is entrusted with the duty to assure that brokerage firms and investment banks provide full and adequate disclosure to potential investors on any securities offered to financial institutions and the general public. They failed to do this with the securities that were backed by sub prime loans. Further, they bought off the rating agencies, with large underwriting fees, that were suppose to opine on the quality of these investments.

More regulations were not needed. The enforcement of old regulations is what is lacking. Why is this the case and who is at fault? More

Great Mortgage Scandal Cover Up

There are now two layers to the sub-prime mortgage scandal that brought down our economy; those who committed the act and those who are covering it up. Why are the culprits not being required to pay compensation to those whose net worth was drastically reduced as a result of the reckless profiteering by Wall Street and large commercial banks?

It is disturbing there was no significant investigation and criminal or civil action against individuals and organizations that contributed to the housing crisis and thus our economic collapse. The fines assessed against some entities are looked at as “a cost of doing business”. Some of the individuals who have been looking the other way held, and presently hold, senior positions in our government. Is there a conspiracy to cover up any wrong doing on the part major banks, wall street firms and their employees? The individuals needing to supply answers include:

Barack Obama
Henry Paulson
Timothy Geithner
Mitt Romney

Barack Obama: President Obama was not in office as the crisis occurred; however, why has he not aggressively pursued obtaining retribution from the culprits that contributed to this economic crisis? He bailed out Wall Street and big banks while very little was done for main street. Was it because of the significant campaign contributions he received for his 2008 run for president? Below is a chart showing contributions Obama received for his 2008 campaign of almost $3.5 million from Wall Street while only $658 thousand was received in 2012.

In 2008 could it be that Wall Street was hoping to buy his cooperation so he would not aggressively pursue criminal action against them? While during the 2012 election maybe they did not want him to remain in office without worrying about raising funds for his next election.

Certified Public Accountants stress the need to not only avoid a conflict of interest with clients whose books they are auditing; they also try to avoid “the appearance of conflict”. At the very least, the appearance of conflict has not been avoided by President Obama.
There was some legitimacy to not pursuing Wall Street and the banks in 2008 and 2009 in that it would have caused the crisis to worsen. We are past any further eminent danger to the economy. What is the President waiting for? Perhaps he fears that the appearance will be that his hands are also stained. The longer he waits, the more permanent the stain.

Henry Paulson: As the housing crisis was coming to a head, Henry Paulson was the United States Secretary of Treasury and was a leading decision maker as to how to minimize the collapse of our economy as result of the crisis that was brought about by the creation of financial securities backed by sub prime mortgage loans created by wall street. These securities were given a AAA investment grade rating by the rating agencies. These rating agencies received fees from the wall street firms issuing the securities and one has to wonder about this conflict also. If they refused to give the requested rating, perhaps they would never have received the business.

Prior to becoming our Treasury Secretary in July 2006 Mr. Paulson was the CEO of Goldman Sachs, one of the largest issuers of these toxic mortgage securities.

Per Wikipedia, “During the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by short-selling subprime mortgage-backed securities…. The pair, members of Goldman’s structured products group in New York, made a profit of $4 billion by “betting” on a collapse in the sub-prime market, and shorting mortgage-related securities…. The firm initially avoided large subprime write downs, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. Its sizable profits made during the initial subprime mortgage crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finance.”

Our government spent hundreds of billions of dollars bailing out Goldman, other firms on Wall Street and large commercial banks. How could Mr. Paulson be objective when the firm he headed prior to joining the Administration financially benefited from the creation and distribution of these securities? As a result he also benefited financially.

Timothy Geithner: In January 2009 Timothy Geithner became the 75th Treasury Secretary of the United States. Previously he was the president of the New York Fed, which he held since 2003. The question remains whether he became “too close” with the big banks and Wall Street firms during his tenure at the New York Fed. Is he too close to the powers in Wall Street to invoke justice? Most importantly was he too close of an ally to pursue the truth about Henry Paulson’s involvement with mortgage back securities while at Goldman?

Congress: Where has congress been during this time when serious investigations should have been occurring. For the Past four years the Republican Congress has been attacking anything that started with the letter D. If someone from the Detroit Tigers showed up in Washington they would have been accused of being socialists by the Republicans. Why have they done very little to investigate this conflict of interest and not seeking retribution from the culprits. Is it that the Super PACS and other large contributors control this body of government?

Mitt Romney: Why was Wall Street and the banks contributing to Romney instead of Obama in 2012? As conjectured above, perhaps one reason was that they wanted a President who would be hungry for their contributions in 2016. 

Another reason could be related to Romney’s refusal to show the details of his 2009 and 2008 tax returns. . He did a lot of business with Goldman Sachs when he was running Bain Capital. It would have been natural for Goldman to recommend to Romney that he invest in these high yield, highly rated mortgage backed securities issued by Goldman. It would also be natural, although, illegal, for Goldman to inform Romney early that these investments were about to be downgraded and he should get out of them. If this were true, the transactions would have showed on Romney’s tax returns and it would have been scandalous.

Therefore, if Romney became President, the chances of Goldman ever being prosecuted would be greatly reduced.

We the people deserve answers and retribution. It is important that their be full disclosure as to why the instigators of the sub prime loan debacle have not been required to make retribution.

Wall Street Raped Main Street

Let us hope the President’s appointment of a federal prosecutor, Mary Jo White, to run the Securities and Exchange Commission signals a significant change from the past. Over his first four years as president the culpability of wall street and large banks was barely given lip service. This is the black spot on Obama’s tenor. He caved in to large contributors. Unfortunately, what the S.E.C. will do has little positive direct impact for the homeowner who was bludgeoned.

Any victories that Ms. White may have will accrue to the U.S. Treasury in the form of fines levied against these culprits with little going back to those who were hurt, the homeowner. The banks and wall street look at these fines as the cost of doing business and probably have budgeted for them. No one will end up in prison; however, during the same time period some poor person will be convicted of  stealing $10 in order to feed his family.
The reason we are in a near depression is banks and Wall Street knowingly concocted, and sold sub-prime loans, and made substantial profits doing so. These same assets could have caused many of these financial institutions to fail except for the government bailing them out.

While the banks were bailed out little was done to help the homeowner. The banks made substantial progress in getting on a healthy footing since the bailout. Now, per an article in the New York Times, , it is expected that the banks will receive a large boost in profits due to an expected refinance boom brought about by a new round of quantitative easing by the Federal Reserve .

This expected “gift” to banks should be used to pay retribution to the homeowners that were brutalized during the last decade by the very same Wall Street and banking industries. The recovery of net worth of the consumer is paramount to the recovery of the economy.

Here is what needs to be done….