Sunday, October 5, 2008

The rise and fall of our housing market and how did it happen?

This is a very high level overview of the pertinent facts. Please excuse my typos and grammatical liberties.

Ok we have heard a lot of talk back and forth on what caused the problems that led to the economic meltdown this year. We have heard that it is both party's fault and that the Democrats share the blame equally with others. Additionally people want you to believe that Glass-Steagal is the main cause here.

What I am going to try to do is provide the core facts of this scenario all the way back to 1938 when Fannie was created.

Before we start with the creation of Fannie Mae a couple of points need to be made.

MBS's are at the center of the problems with the sub-prime market. Mortgage backed securities have been created to combine risky loans into tranches which then as a bundle are sold as an investment instrument to various financial institutions.

It should be noted from a historic standpoint that between Civil War and WWII in this country there were six failures of mortgage security schemes within this country. Economists of all shapes and sizes if they just reviewed history and learned from it would have known we would have problems with this. MBS's as a financial instrument alone are not the cause - they need an enabler.

The enabler for this meltdown is Fannie/Freddie and several Democrats hell bent on protecting this scheme for their political gain.

After reviewing the facts you can decide on who is at fault and to what degree.

1938 Roosevelt (D) created the New Deal which Fannie Mae was created to provide an opportunity of credit in a financial market where the "housing" market didn't exist.

NOTE: Many Great Depression Historians based on review of the cause and effects now conclude with some level of certainty that the "New Deal" only prolonged the most serious effects of the Great Depression.

A lot of people have forgotten that the DOW did not return to its pre-Great Depression levels until 1954 - think about that - if that were today it would mean we wouldn't be above 10,000 until 2035.

1968 Johnson (D) along with a Democratic controlled congress created one of the largest expansions of government called the "Great Society" which included spinning off Fannie Mae as a quasi-private organization. Even though it was now to be considered private it was always understood that the government would back it - translation: Fannie could take higher risks than any other private company because of the government backing.

1970 Nixon (R) Freddie Mac was created to compete with Fannie Mae

1977 Carter (D) created the CRA (Community Reinvestment Act) which provided for strong oversight. Well that oversight was to force banks to extend credit to low income people regardless of risk.

During the 80's and 90's Fannie and Freddie continued to grow but a very interesting event occurred which was the beginning of the launch of bad people that Fannie and Freddie would hold.

A Thrift in Illinois wanted to merge with another bank. ACORN through legal means challenged the merger on the basis that the Thrift was not providing easy enough access for low income based loans. The Thrift countered in the lawsuit that it wasn't prudent business practice and the loans would jeopardize the bank. ACORN prevailed through the courts to force banks in Illinois to allow these low income loans to be made available regardless of how reckless it was in support of CRA.

You can only guess who was the attorney in Chicago who worked directly with ACORN to make this happen.

DING DING DING you guessed it - Barack Obama (D) himself.

This was actually a landmark victory for CRA because it literally opened up every Thrift in the country to legal trouble if it didn't adopt the reckless provisions of CRA. Sub-prime lending was born and one its parents is Obama.

During the 1990's Clinton (D) really blew the support for CRA wide open and lowered the bar even more for more reckless loan giving. During the last few months of his administration they literally mandated Fannie and Freddie were to increase the mix of high risk and reckless loans to the level of 50%. Yep that's right - 50% of their loans had to be crap.

Two of the biggest defenders for Freddie and Fannie for many years have been Frank (D) and Schumer (D).

4/2001 Bush (R) during the budget request for the following year raised the first alarm about Freddie and Fannie that there was potential trouble there. has just busted and then 9/11 all eyes unfortunately were elsewhere.

During 2002 WSJ Editorial page started writing stories warning of the impending disaster of Freddie and Fannie. Each time the editorial staff attempted to interview the key people either in Freddie or Fannie or close organizations like CountryWide they were told to butt out and in some cases were threatened. One of editorials even stated that Freddie and Fannie was going to be our next Enron.

2003 Bush (R) called for significant oversight on Freddie and Fannie. John Snow even made a speech directly on the floor calling for strengthening of the oversight of GSE's particularly Freddie and Fannie. Barney Frank (D) led the charge to kill any oversight on Freddie and Fannie and using his now becoming famous lines - nothing is wrong with Freddie and Fannie.

2004 Freddie and Fannie were caught cooking their books which mean they were making things look a lot rosier than they really were which in turn allowed picaroons like Reins (strong D supporter) the ability to pocket 10's of millions of dollars in bonuses.

2/2004 Greenspan even called for oversight of Freddie and Fannie.

4/2005 Schumer (D) took major steps to block any new oversight on Freddie and Fannie - once again stating everything is great in the housing market - why does anyone want to legislate something that is working so well?

4/2005 Bush (R) pushed for more oversight on Freddie and Fannie - you can see the famous YouTube clips now of all the Democrats (D) blowing off ALL calls for any oversight of Freddie and Fannie.

The Senate Banking committee answered the call of President Bush (R) to adopt much stronger legislation which many view in hindsight that if this legislation had passed on the Senate floor it would have stopped the meltdown of this year.
The Senate Banking committee voted on party lines to adopt the legislations ALL Democrats (D) on the committee voted against the new legislation and all Republicans (R) on the committee voted for it.

When it went to the Senate floor the Democrats (D) successfully blocked a vote on it. - The legislation died.

2006 Another Republican bill co-sponsored by McCain (R) hit the floor with McCain specifically warning all members that Freddie and Fannie posed a significant threat to our financial markets and ultimately the taxpayer. He clearly warned them of the impending disaster.

The Democratic (D) controlled killed the legislation. The bill voted down party lines. Democrats (D) against, Republican (R) for.

By the time 2008 came around Freddie and Fannie held over $4 trillion dollars worth of mortgage paper.

In July 2008 Barney Frank (D) told everyone that Freddie and Fannie were fine and going forward everything was going to be great.

Then we had our meltdown. I think it should be noted that the first bail-out bill had over $20 billion earmarked for far left organizations and that is the primary reason that Republicans couldn't stomach it. The bill failed the house by 12 votes. If the Democrats really wanted to pass it they had the majority to do it. It should be noted that 12 Democrat (D) members of Barney Frank's banking committee voted against the bill. Even at our darkest hours Barney's boys were still in denial.

All you have to do is look at the facts and it is pretty clear who bears the majority of responsibility here. (CLUE: Democrats!!!) It is also clear that Republicans are not getting enough credit for trying to fix this time and time again.

According to economists and business school professors Freddie and Fannie and the lack of oversight on their reckless practices is the primary cause for our financial meltdown.

Anyone who tries to tell you Freddie and Fannie were NOT the major cause are not being honest with you. Any politician that is telling you that Freddie and Fannie were NOT a major cause is not dealing with reality.

All we need to do is review history and we can stop these things from happening. Remember Roosevelt (D) raised taxes during the Great Depression and unemployment was at 25%.

One thing is for sure - we CANNOT under any circumstance raise taxes and we CANNOT increase government spending or we will see the Greatest Depression on our shores - and it took WWII for us to start to crawl out of the last one. We are doomed to repeat history unless we get honest and use straight talk with each other.

If you want to look at the entire picture it seems to be clear to me that our meltdown is really a result of almost 100 years of bad government socialistic tendencies and programs which the Democrats seems to want to continue to shove down our throats.


These videos are fun to watch...make sure you keep a bucket close by!
Video showing the Democrats in action protecting Freddie and Fannie

Burning Down The House:What Caused Our Economic Crisis?

Timeline of who defended Freddie and Fannie

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