Interrupt "lynch capitalism" mob for a little truth: Fannie/Congress created crisis

[Roxanne Appleby]

Interrupt "lynch capitalism" mob for a little truth: Fannie/Congress created crisis

from "Blame Fannie Mae and Congress For the Credit Mess"
By CHARLES W. CALOMIRIS and PETER J. WALLISON

Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.

How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.

It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that -- despite their subsidized borrowing rates -- they did not significantly reduce mortgage interest rates. In the wake of Freddie's 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.

If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.

The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.

more . . .

 

[Roxanne Appleby]

New York Times, September 30, 1999:

Fannie Mae Eases Credit To Aid Mortgage Lending

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

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.

more . . .

 

[Roxanne Appleby]

Me, 9/21/08:

Do you wanna know what really caused this crisis? It's the same thing that caused that electricity fiasco in California a few years ago. Legislators there, and Congress here, created a set of perverse incentives for the regulated industry, and then were shocked to discover that the players in those industries aligned their behavior with those incentives.

The goal here was to "encourage homeownership" in "underserved communities," and to accomplish it policies were enacted that encouraged lenders to abandon the prudent practices that had previously prevented them from making stupid loans. The fancy financing was devised by Wall Street to accomodate all that - they were indirectly responding to the same perverse incentives. Too-easy money from the Fed threw gasoline on the fire.

So now the political and media establishents are screaming for the heads of those rascals in banking and Wall Street who "created" the crisis. Bullshit. You don't think there were people telling Congress that if you incentivise lending to individuals who are poor credit risks you'll get more foreclosures? Of course there were. They were ignored, drowned out by a chorus of phony, "We have to help people." Worse, those same scumbags are demanding that because of the crisis that they created they be given even more power and control over our economy. Fuck that, and fuck them, and fuck the populist horses they rode in on, including all the dupes in the electorate and the media who cheered (and cheer) them on.

http://forum.literotica.com/showpost.php?p=28739751&postcount=854

 

[Roxanne Appleby]

WSJ, 9/22/08

"Yes, greed is ever with us, at least until Washington transforms human nature. The wizards of Wall Street and London became ever more inventive in finding ways to sell mortgages and finance housing. Some of those peddling subprime loans were crooks, as were some of the borrowers who lied about their incomes. This is what happens in a credit bubble that becomes a societal mania.

"But Washington is as deeply implicated in this meltdown as anyone on Wall Street or at Countrywide Financial. Going back decades, but especially in the past 15 or so years, our politicians have promoted housing and easy credit with a variety of subsidies and policies that helped to create and feed the mania. Let us take the roll of political cause and financial effect . . . (laundry list follows)

" . . .Beware politicians who peddle fables that cast themselves as the heroes."

 

[Liar]

Now, i haven't read every post in every thread here, but I thought it was pretty clear to everyone with a brain that the political branches were at least pertly to blame.

Ideologically driven incompetent deregulation of the banking and mortage market created the crisis. Starting somewhere in the Reagan days.

And no, this is not a commie control state supportive statement. I'm not against deregulation per se. I'm against incompetence.

Capitalism is a driving force that works pretty well without steering. But dang it, some railing at the cliff edges woulda been awfully nice.

 

[JAMESBJOHNSON]

ROXANNE

I'm devouring a ton of books, to better understand how we got here. Bob Dylan said it right 40 years ago: You dont need a weatherman to know which way the wind blows.

When Bill Gates and his pals visit the employee cafeteria at Microsoft, the average pay of everyone in the cafeteria is suddenly a billion bucks. When they leave, the average pay returns to 35K. And thats okay. Everyone should go as far as their efforts and talent are able to carry them.

But whats happened in America is: The wealthiest people and corporations pay the government to limit how far everyone can go. We have a political economic system. Capitalism is reserved for the middle-class. As one writer says: Bill Gates donates a billion to charity, the charity creates an off-shore bank account for Bill Gates, then goes out of business. Congress and IRS create such loopholes for Gates and the others.

 

[Somme]

Try this bit on for size if you like - his real crime was...........

http://www.brasschecktv.com/page/291.html

 

[Pure]

isn't it odd

that rox has not a single word about actions of Republican Congresses and congressmen since the time of Ronald Reagan?

the Freddie Mac probs are only a piece of the puzzle. there is nothing inherently crisis provoking or wrong about guaranteeing home ownership loans to working people with less than ideal credit. nor is it a moral failure, as a working low income, person to avail oneself of a federal guarantee in getting an appropriately scaled morgage.

rox and the wsj are engaged in frenzied attempts to avoid regulation of investment banking etc. the present paulson plan is a gift to these people. on tv last night, a wsj person was asked "why is it not appropriate for the gov to seek equity in a firm it rescues?" the answer was, "government ownership [partial] is how they do it in Europe; it's not our system."

rox is absolutely incapable of a non partisan analysis of the crisis; check all her postings and see if ANY republican legislator or executive is ever hauled on the carpet. all the major scandals, e.g. S and L are BI partisan in their basis. Repugs and Dems alike are bought and sold by 'investment houses.'

 

[Roxanne Appleby]

Oh, and one more, before you go too far down this path of allowing perhaps the slimiest crew of Congressional weasels in more than a century lead you into a world-wide depression to save their own political bacon. This one's a poignant warning about the real consequences of the kind of "hang the capitalists" class-warfare game that's so popular right now, so I'm posting the whole of it.

Taking Revenge on the Rich Will Not Bring Recovery

by Amity Shlaes

Police short sales and block them, says Securities and Exchange Commission Chairman Christopher Cox. Fire the SEC chairman, says John McCain. Investigate those short sellers, say state attorneys general. Hold hearings to grill Wall Streeters says Nancy Pelosi. "Fire the whole Trickle-Down, On-Your-Own, Look-the-Other-Way crowd" says Barack Obama, and "get rid of this whole do-nothing approach to our economic problems." The Democratic presidential candidate wants public affirmation of his argument that the whole free-market philosophy of economics has been wrong.

Some of this talk carries an implicit suggestion: Do what I say or we will have another Great Depression. And no wonder: This September feels a lot like autumn 1929.

But there's an important fallacy here. The stock market crash of October 1929 and the Great Depression were not the same thing. What made the depression great was not magnitude but duration -- the fact that unemployment was still 20% 10 years later. In the 1930s, policies like the ones described above did not speed recovery; they impeded it.

Not long after the market crashed to 199 from its 381 high at the end of the summer of 1929, President Herbert Hoover turned on short sellers. Like our SEC, he demanded a curb on short sales. "Bear raids" or "bear parties" were to be stopped; the blame for the crash all belonged to "certain gentlemen."

Then, as now, there was a lengthy discourse on the difference between "normal" short sales and "naked" ones. New York Stock Exchange President Richard Whitney argued that curtailing such sales postponed unavoidable pain -- or even made it greater.

It was wrong, he said, to vilify shorts. "Such a contract to deliver something in the future which a person does not own is common to many types of business," Whitney carefully spelled out in layman's language. "When a builder contracts to build a skyscraper he is literally short of every bit of material." Yet the anti-short and anti-Street mood grew. In a spirit every bit as zealous as Sen. McCain, lawmakers assigned attorney Ferdinand Pecora to lead a commission hunting for wrongdoing on Wall Street.

Most observers have concentrated on the corruption that was indeed uncovered by investigators. Whitney, for example, discredited his own argument when he emerged later as a trickster and embezzler.

But the most important fact about this early period is the Dow's movement. Clean-up pronouncements cheered voters, and momentarily, the Dow Jones Index rose a bit later in 1929. But the hostility whipped up by politicians scared a market already well spooked by monetary, banking and international challenges. By summer 1932 the Dow plummeted to the 50s range. This was the year Hoover created the Reconstruction Finance Corp., after which Washington's rescue entity of today is supposedly modeled.

In 1933 there was a moment when the U.S. really did seem poised for recovery -- the moment of Franklin Roosevelt's inauguration. Confronting the banking crisis, President Roosevelt did what President Bush, Congress and the Treasury are likely to do in coming days: create a mechanism to sort out banks and their holdings, to separate good assets from bad.

Such an office can shorten a crisis -- the Resolution Trust Corporation, created to deal with the 1980s Savings and Loan debacle did. There was nothing necessarily partisan about the process. Hoover's Treasury secretary, Ogden Mills, and Roosevelt's new Treasury secretary, William Woodin, sat together at the task, just as Republicans and Democrats presumably will now. The establishment of the SEC in 1934 likewise set the country up for recovery.

But like today's politicians, Roosevelt also used the downturn as a weapon to trash markets generally. The New Dealers even used the same mocking phrases Mr. Obama does today. The rich might think that wealth trickled down, Roosevelt's speechwriter Sam Rosenman would later note, but "Roosevelt believed that prosperity did not 'trickle' that way."

In 1933 and 1934, Roosevelt went on the attack. The Sergey Brin of the 1920s was Samuel Insull, the Chicago utilities magnate who created the format for the modern electrical grid, taught housewives about refrigerators, employed thousands and proved it was possible for the private sector to raise the prodigious amounts of cash necessary for utilities, the most capital-hungry of industries. But the credit crunch killed off Insull's leveraged companies, rendering shareholder portfolios worthless.

Insull was extradited from Greece and hauled back to Chicago. A jury refused to convict him of fraud. But federal or state prosecutors continued to harry him until he died of a heart attack or stroke in 1938.

The deity of the markets, the Alan Greenspan of the 1929s, was Andrew Mellon. He served as Treasury secretary to Presidents Harding, Coolidge and Hoover. In 1932, while Mellon was still in office, a young Democratic Congressman from Texas -- Wright Patman -- launched a campaign to impeach him.

The Roosevelt administration was more systematic. Treasury Secretary Henry Morgenthau instructed a staff lawyer, Robert Jackson, to prosecute Mellon for tax evasion. Jackson hesitated. Morgenthau, anticipating New York's Eliot Spitzer, insisted, saying, "You can't be too tough in this trial to suit me." Jackson then jumped up, exclaiming, "Thank God I have that kind of boss," as Morgenthau recounted in his memoirs.

A grand jury declined to indict Mellon. The government then began multiple actions against him. Exoneration came, but only after Mellon's death. Roosevelt put Jackson on the Supreme Court.

In these years, the market was trying to recover, but prosecutors and tax collectors kept getting in the way. Mrs. Pelosi might note that even after the Pecora Commission finally completed its hearings, unemployment was still 20% rather than 10%.

Roosevelt's first effort at raising wages to revive the economy, the National Recovery Administration, was declared unconstitutional. Next came the Wagner Act, which led to massive unionization. Wages increased and unemployment even dipped a bit, but productivity did not rise in commensurate fashion. This contributed to companies' struggles, as Lee Ohanian of UCLA has shown. Industrial production plunged. In 1938, John L. Lewis of the CIO attained the apogee of his power, but unemployment was again at that appalling two in 10.

The signal Washington emitted in these years was clear: Not Open for Business. A poignant moment came in August, 1937, when Mellon died in Southampton, N.Y. When this star of their old firmament winked out, investors felt themselves in uncharted waters. Other negatives -- rising labor costs, regulatory tightening, a doubling of reserve requirements for banks -- suddenly seemed insurmountable. The market dropped from 189 in August to 120 by the next February, well below the lowest ebb in 1929.

A desperate Treasury Secretary Morgenthau traveled to New York to placate a crowd of 1,000 economists and businessmen at the Hotel Astor in November, 1937. The audience laughed at him for daring to try. By the next year the New Dealers were quietly telling themselves their anti-wealth experiment was over -- and turning to the impending war in Europe.

The point for us in our own fragile moment is clear. To be sure, clean up is necessary. It can even help the market -- some. But in the long run what works politically is different from what works economically. Revenge, however sweet, cannot bring recovery.

Ms. Shlaes, a senior fellow at the Council on Foreign Relations, is author of "The Forgotten Man: A New History of the Great Depression" (HarperCollins, 2007).

 

[Roxanne Appleby]

Pure, you insist on making this a partisan crusade, and insist that I am somehow giving the Repubs a free ride. I'm doing no such thing - many if not most of the congressional Repubs have been willing co-conspirators to the whole sorry mess. By all means, let's hang them out to dry too. It's a matter of fact that the ringleaders were Dems, but they couldn't have done it without Repubs. As I said, the whole crew, R & D, may be the worst set of Congressional weasels in more than a century.

 

[Pure]

wierd, eh

[mr schlaes] says blame it on FDR; then fast forward to Clinton.!

Ronnie Reagan, the sacred cow, must never be mentioned.

you're reading too much Human Events, Rox. check the real world of US politics, where the moves you describe are common to both parties.

 

[cloudy]

Roxanne, do you ever think for yourself?

It would certainly be unique to see you actually say something instead of copying & pasting someone else's thoughts.

 

[Roxanne Appleby]

Now, i haven't read every post in every thread here, but I thought it was pretty clear to everyone with a brain that the political branches were at least pertly to blame.

Ideologically driven incompetent deregulation of the banking and mortage market created the crisis. Starting somewhere in the Reagan days.

And no, this is not a commie control state supportive statement. I'm not against deregulation per se. I'm against incompetence.

Capitalism is a driving force that works pretty well without steering. But dang it, some railing at the cliff edges woulda been awfully nice.

Not quite in the sense you mean, Liar.

"In the Beltway fable, bank supervision all but vanished in recent years. But the great irony is that the banks that made some of the worst mortgage investments are the most highly regulated. The Fed's regulators blessed, or overlooked, Citigroup's off-balance-sheet SIVs, while the SEC tolerated leverage of 30 or 40 to 1 by Lehman and Bear Stearns.

"The New York Sun reports that an SEC rule change that allowed more leverage was made in 2004 under then Chairman William Donaldson, one of the most aggressive regulators in SEC history. Of course the SEC's task was only to protect the investor assets at the broker-dealers, not the holding companies themselves, which everyone thought were not too big to fail. Now we know differently (see Bear Stearns below).

"Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma. All of this reaffirms the historical truth that regulators almost always discover financial excesses only after the fact."

WSJ, 9/22/08, A Mortgage Fable

The problem wasn't an absence of regulations, but the presence of a panoply of activist policies creating sharp incentives for the regulated industry to behave in destructive ways. Essentially, as all the articles I've posted here document, lenders were forced to either play along and just hope for the best, or go out of business.

 

[Pure]

exactly who is it, in Congress,

who is trying to "lynch capitalism"?

names, please. and evidence.

--
i find it pretty offensive that rox's rhetoric is borrowed from a real situation where hundreds of black males got their necks stretched and genitals cut off, and applies it to a situation where heads of companies like merrill, lehman, citigroup and others are marching off to retirement with bonuses in the tens of millions.

Lehman folks are being 'lynched' so badly that there is reportedly 2 billion set aside for compensation of top execs during and after the company folds.

what's next, rox, calling for bankers to be protected against genocide?

 

[Liar]

Pure, I took it to mean that Rox thought there was a "lynch capitalism" vibe in the debates on these boards.

Was just going to ask where that was, because apart from possibly Le Jaq, I haven't seen it.

(Not that I have been looking too closely, mind you.)

 

[Pure]

a scene from rox's imagined lynching of capitalism

http://www.independent.co.uk/news/b...-bonus-for-lehmans-new-york-staff-937560.html

Fury at $2.5bn bonus for Lehman's New York staff

By David Prosser
Monday, 22 September 2008

Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.

 

[neonlyte]

Gosh... you've been quiet, dear.


Too much regulation drove mind bending economists to find ways to subvert the system. By nature, most regulation is retrospective... there really is not much point in pinning the events of today on the circumstances decades ago just as there is no team of regulators that can write regulation to prevent greed.

Nice to see you entering politics, Roxy

 

[R. Richard]

who is trying to "lynch capitalism"?

names, please. and evidence.

--
i find it pretty offensive that rox's rhetoric is borrowed from a real situation where hundreds of black males got their necks stretched and genitals cut off, and applies it to a situation where heads of companies like merrill, lehman, citigroup and others are marching off to retirement with bonuses in the tens of millions.

Lehman folks are being 'lynched' so badly that there is reportedly 2 billion set aside for compensation of top execs during and after the company folds.

what's next, rox, calling for bankers to be protected against genocide?

In fact:
Charles Lynch (1736 – October 29, 1796) was a Virginia planter and American Revolutionary who headed an irregular court in Virginia to punish Loyalist supporters of the British during the American Revolutionary War. The terms "lynching" and "lynch law" apparently derive from his name.

Lynch was born in Virginia to Quaker immigrants from Ireland. The city of Lynchburg, Virginia, was named for one of his family members, probably his brother John. In 1767 Charles became a justice of the peace of Bedford County, Virginia, but was disowned by the Quakers for taking an oath of office, something Quakers were not permitted to do. His wife Anne Terrell remained a lifelong Quaker, and their five children were raised as Quakers. Lynch served in the Virginia House of Burgesses and the Convention from 1769 until 1778, when he became a militia colonel. After the Revolution, he served in the Virginia Senate from 1784 to 1789.

In several incidents in 1780, Lynch and several other militia officers and justices of the peace rounded up suspects who were thought to be a part of a Loyalist uprising in southwestern Virginia. The suspects were given a summary trial at an informal court; sentences handed down included whipping, property seizure, coerced pledges of allegiance, and conscription into the military. Lynch's extralegal actions were retroactively legitimized by the Virginia General Assembly in 1782.

"Lynch's Law", referring to organized but unauthorized punishment of criminals, became a common phrase, as was used by Charles Lynch to describe his actions as early as 1782. Variations of the term, such as "lynch law", "judge lynch", and "lynching", were standard entries in American and British English dictionaries by the 1850s. In 1811 a man named Captain William Lynch claimed that the phrase, by then famous, actually came from a 1780 compact signed by him and his neighbours in Pittsylvania County, Virginia, to uphold their own brand of law independent of legal authority. The obscurity of the Pittsylvania County compact compared to the well-known actions of Charles Lynch casts doubt on it being the source of the phrase.

 

[Pure]

good points rr

In several incidents in 1780, Lynch and several other militia officers and justices of the peace rounded up suspects who were thought to be a part of a Loyalist uprising in southwestern Virginia. The suspects were given a summary trial at an informal court; sentences handed down included whipping, property seizure, coerced pledges of allegiance, and conscription into the military. Lynch's extralegal actions were retroactively legitimized by the Virginia General Assembly in 1782.

can you or rox tell me of some wall streeters to whom this is happening?

 

[xssve]

The problem wasn't an absence of regulations, but the presence of a panoply of activist policies creating sharp incentives for the regulated industry to behave in destructive ways. Essentially, as all the articles I've posted here document, lenders were forced to either play along and just hope for the best, or go out of business.

You are absolutely right that absence of regulation was not the problem, enforcement of those regulations was - and just as FNMA created a seller market for subprimes, republican tax reduction/deregulation rhetoric erected barriers for entry to any politician who didn't parrot these ideologies.

Thus, even the leftiest of democrats today will seldom if ever say the T-word, and everybody that blows the whistle on the possible consequences of not regulating the markets is ignored or vilified - everybody remembers that Spitzer was frequenting prostitutes, who now even have their own websites, nobody remembers that he testified before congress less than a month before that about the need for regulation.

If you really want to appear to be bi-partisan, you're going to have to fess up that the whole political climate that allowed this thing to happen is the result of RNC media manipulation.

And the reason for that is not that I want you to eat crow, but that this thing has got to change or it'll only get worse.

Because the real situation is this: if we don't guarantee all that debt, there is every likelihood that the Chinese will stop buying our bonds and the government itself will be bankrupt almost immediately, meaning all the troops stationed in Iraq will be stranded, among other things.

That's the situation republican debt policy has gotten us into, and it all started with that lie about income taxes vs total revenues.

 

[Le Jacquelope]

Roxanne, do you ever think for yourself?

It would certainly be unique to see you actually say something instead of copying & pasting someone else's thoughts.

Isn't it great to watch the ubercapitalists struggling desperately to climb out of the trash bin of history?

I never thought I would live to see the day that the Capitalists would face the same shame and humiliation that Communism has endured. Now we can start to move on past both failed ideologies.

 

[R. Richard]

In several incidents in 1780, Lynch and several other militia officers and justices of the peace rounded up suspects who were thought to be a part of a Loyalist uprising in southwestern Virginia. The suspects were given a summary trial at an informal court; sentences handed down included whipping, property seizure, coerced pledges of allegiance, and conscription into the military. Lynch's extralegal actions were retroactively legitimized by the Virginia General Assembly in 1782.

can you or rox tell me of some wall streeters to whom this is happening?

Well, property seizure is pretty obvious. Coerced pledges of allegiance if you want to keep a job after the government/other firm takes over the people who pay your salary. You certainly will not hear me supporting whipping for even the people who ran the firms that went under. A hit, followed by forced conscription of the ass hole's family into street prostitution, yes. Well, maybe whipping for members of Congress.

 

[manyeyedhydra]

I don't see much in the way of truly free markets here.

If I ran a pizza business and paid an exorbitant bonus to one of my managers because he made a lot of 'sales', even though in actual fact he was giving away the pizzas for free, then I'd expect to go out of business fairly sharply and be replaced by the next pizza business.

These are failed businesses. In a proper natural order they should be allowed to go extinct and be replaced by companies with more prurient approaches to risk and a more conservative bonus structure. Instead they're going to be rewarded for their failure with a bailout that pretty much equates to massive daylight robbery. No wonder they're trying to push it through quickly, before anyone notices.

I'm surprised the average US taxpayer isn't rioting in the street.

 

[AvoidingRealWork]

To sum up:

The Federal government incentivizes bad loans so that people who wouldn't otherwise be able to can afford housing.

Lo and behold, the bad loans turn sour.

The Federal government bails out the losers in the game of bad debt hot potato to the tune of $1 Trillion-with-a-T.

So basically, what you have is a back-door Federal housing subsidy. Not that there's anything wrong with that. But it would have caused a lot less disruption to everyone else if they just gave the fucking money away to people who wanted to buy homes in the first place.

 

[xssve]

Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

By Eliot Spitzer
Thursday, February 14, 2008; A25

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

The writer is governor of New York.

That would be H.R. 2622 which effectively abrogates states rights to privacy

3.5 Financial regulation did not prevent riskier lending

If lenders faced tight regulation that enforced highly prudent lending, the inherent tendency to higher LTV ratios driven by the US tax system, as described above, might not have actually manifested in substantially higher LTV ratios. US households would then not have ended up in negative equity in such numbers. More generally, how lenders are regulated has obvious implications for the riskiness of mortgages offered and the propensity of borrowers to default.

The US mortgage market is subject to an array of laws and different regulators. The regulated GSEs enforced quality control in the conforming market, but the rest of the mortgage market was more lightly regulated. Mortgage lenders that were not also depositories were the lightest
regulated of all. As one example of the relatively light regulation of many mortgage lenders, consider the new regulations announced by the Federal Reserve in December 2007 and approved in July 2008, as part of its role of enforcer of the Home Ownership and Equity Protection Act. Among the practices newly banned by these regulations were coercing a real estate appraiser to misstate a home's value and making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value (Federal Reserve Board 2008). The implication is that these practices were permitted in the absence of the new regulation, and were common enough to merit an explicit ban. Had all US mortgage originators been bound by a requirement to consider the affordability of the repayment explicitly as is the case under Australia's Uniform Consumer Credit Code or the requirements of UK legislation, for example it seems unlikely that no-documentation (stated-income) mortgages or exploding
ARMs would have become so prevalent.

In addition, following intervention in 2004 by the Office of the Comptroller of the Currency (OCC), federally regulated lenders were exempted from state legislation which was in many cases stricter than that at the federal level. Some of the practices banned under some states' law included the prepayment penalties and balloon payments that have been shown to raise default rates, independent of the borrower's credit score(bold mine) (Quercia, Stegman and Davis 2007).

BIS Working Papers
No 259
The housing meltdown:
Why did it happen in the
United States?