The Housing Bubble 2.0

Combine economic illiteracy of the public with Democrat racial politics and you have a sure recipe for disaster. So it was it 2007 with the financial meltdown. And so it now seems that, because of the same illiteracy and racial politics, we will be repeating that meltdown sometime in the foreseeable future.

Let's review the origins of the subprime crisis that brought our economy to its knees in 2007. In the early 90's, a charge was leveled that banks were being discriminatory in their lending practices. It turned out upon review to be a mistaken charge, but by then the facts no longer mattered. The left went on a jihad to force banks to lower their colorblind lending standards that had been developed based on over a century of experience showing that, if a borrower had sufficient capital of their own invested in a house (10% to 20% at time of purchase), than the loan was far more likely to be repaid. The left empowered community groups such as ACORN to bring suits against banks without the slightest evidence of discriminatory intent in lending standards beyond mere statistical disparities in the number of loans issued to minorities. Bill Clinton coupled this with a massive program to increase mortgage loans through the quasi government agencies, Fannie Mae and Freddie Mac, who began underwriting mountains of loans with little or no money down.

The subsequent explosion in subprime and alternative home mortgages gave the illusion of wealth. In reality, it was a cancer, but one made exponentially worse by the biggest scandal of the whole bubble, that credit rating agencies were giving triple-A ratings to bonds backed by subprime mortgages. The Credit Rating Agencies did so, one, knowing that these were highly risky investments, they did so with the connivance of Fannie Mae and Freddie Mac, and they did so with the full knowledge of our legislators. Barney Frank led the left's charge to beat back any attempt at stopping this insanity by repeatedly playing the race card, right up until the whole system collapsed. With the bonds AAA rated, they could lawfully be purchased by any financial institution in the world -- and thus did the contagion spread. Added to this were Credit Default Swaps, a rather brilliant form of private insurance between institutions that became regularly used in regards to these AAA rated, subprime mortgage backed bonds. They would have worked fine if the market dipped, but when the housing market tanked completely, the Credit Default Swaps failed also, adding a huge layer of complexity to the problems faced by our financial institutions. Thus the 2007 meltdown that threatened the viability of most banking institutions in the U.S. and many in Europe.

With Obama's win in 2008, any chance that we had of addressing the actual causes of the financial crisis that ruined our economy was lost. Obama blamed the meltdown on some vague allegations of "Wall Street greed" and Credit Default Swaps. The prime architects of our financial meltdown, Barney Frank and Chris Dodd, drafted legislation that severely burdened our financial institutions, and did worse than nothing about any of the actual causes of the meltdown. The deeply misguided social engineering of our lending standards were not simply ignored in the legislation, but actually significantly strengthened -- to the point that Eric Holder, in his time as Attorney General, has claimed as one of his stellar achievements to be strong arming banks into lowering lending standards even further. Zero down loans were allowed to continue. Fannie Mae and Freddie Mac were left intact to continue to underwrite risky mortgages. No changes have been made to the Credit Rating Agencies. And worse, the legislation, by providing de facto government backing of large banks, has seen smaller banks across the nation, the ones that fully knew and supported their communities, forced to shutter their doors, making our nation as a whole ever more dependent on a few colossal institutions that really are "too big to fail." Plus there is the fact that a whole swatch of people who should have been jailed over the fraud that drove this system have not, and will likely never, pay any price.

So, on that happy note, there is this the other day from John Stossel:

They're doing it again! . . .

Then the politicians said, "We'll fix this so it doesn't happen again." Congress passed Dodd-Frank and a thousand new regulations. The complex rules slowed lending, all right. It's one reason this post-recession recovery has been abnormally slow.

But -- April Fools'! -- the new rules didn't solve the problem of reckless lending, and it's happening again.

Because our government subsidizes home purchases, recklessness is invited. Somehow, Americans buy cars, clothing, computers, etc. without government guarantees, but politicians think housing is different. . . .

At the time of the housing crash, most high-risk loans were guaranteed by the government. Those banks wouldn't have been as reckless if they had their own money on the line.

But they knew they could grant a mortgage to most anyone and the FHA would back it or government-sponsored companies Fannie Mae and Freddie Mac would buy it. That fueled the frenzy of lending.

After the bubble popped, I assumed the political class would learn a lesson, but they haven't. Today, even more American mortgages are guaranteed by government. More than 90 percent of new loans are backed by taxpayers. After the crash, Fannie and Freddie did raise their minimum down payment -- to a measly 5 percent -- but a few months ago, they lowered it again to 3 percent!

Are they crazy? A sensible congressman, Rep. Jeb Hensarling (R-TX), tried to get an answer from the administration's new mortgage regulator, asking in a hearing, "All things being equal, is a 3 percent down riskier to the taxpayer than a 10 percent down loan?"

A pretty basic question -- but one that director Mel Watt still dodged, responding, "Mr. Chairman, that is generally true. But when you pair the down payment with compensating factors ... look at other considerations ... you can ensure that a 3 percent loan is just as safe."

What? That's nonsense. This is what happens when pandering politicians get to dispense your money. Watt is among the worst. When he was a congressman, he pushed for mortgage subsidies for welfare recipients who made down payments as low as $1,000.

Edward Pinto, who studies housing risk for the American Enterprise Institute, says policies like this put us on the way to another bubble: "The government is once again ... saying, let's loosen credit, give loans to people that potentially can't afford them, and everything will be fine because house prices will go up."

On my show, former FHA commissioner David Stevens, who did improve lending standards a bit after the crash (before Watt and his cronies weakened them), responded that this time the government has new regulations that will prevent things falling apart: "I think in the effort, post-recession, to make sure we never go down this path again, we have created more rules than ever existed in the history of this country."

But more rules aren't a solution. Government's regulators didn't foresee the problems last time. Fannie and Freddie got a clean bill of health right up until the collapse.

The solution is less government involvement. Canada doesn't have a Fannie, Freddie or FHA. Canada didn't have the trauma of a housing bubble. In Canada, lenders and homeowners risk their own money.

Does that mean Canadians cannot afford homes? No! Without all that government help, Canada's homeownership rate is higher than ours.

Back to the future, eh.

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The Past Will Come Back To Haunt Us:

The iconic Halloween monster is undying - whether it be demons, vampires, Michael Myers or Freddy Kruger. They keep coming back to do us harm.

And so it is with the policy of the modern far left - horrifying and undying. In this instance, the same policies that gave us the financial meltdown of 2008 are not merely alive and well, but being strengthened under Obama.

In 2008, I composed a long post, Hurricane Subprime, taking an in depth look at the causes of our economic meltdown. The "but for" cause of the Great Recession was social engineering that eviscerated color-blind credit rating standards. And as I pointed out when Dodd Frank was proposed, the Obama administration, rather than correcting this insanity, actually doubled down on it. Now this from Power Line:

The Obama administration is pressing ahead with its plan to impose racial quotas on the financial industry via the Dood-Frank law. Dodd-Frank requires agencies with financial sector regulatory responsibilities to “establish an Office of Minority and Women Inclusion” that will develop diversity and inclusion standards for workplaces and contracting.

Accordingly, these agencies have published in the Federal Register a proposed “Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies.” As Roger Clegg reports, that Statement, which applies not only to the agencies themselves but also to all those regulated by it, insists on the use of “metrics” and “percentage[s]“ to ensure compliance with the diversity requirement.

In other words it imposes quotas — quotas that will apply to hiring, promotion, and contracting.

There’s plenty of irony here; for it was the imposition of race-conscious lending practices on the banking industry that led to the financial crisis, that led to Dodd-Frank. . . .

This is horrendous. But as bad as it is, it is not the only devastating policy that gave us the melt-down - and which remains ensconced in our financial system. As I pointed out in Hurricane Subprime, the only unknown at the time was how the Credit Rating Bureaus played into all of this. They were supposed to be the backstop which would have prevented the financial crisis. But these agencies were wholly complicit in giving AAA ratings to subprime mortgage backed securities so that they could be traded throughout our financial system - many institutions by law can only purchase AAA rated securities. Clearly these rating agencies did not function as they should have. The "why" was finally answered in a superb article in Rolling Stone, The Last Mystery Of The Financial Crisis:

Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more. . . .

Do read the whole article - it will leave you wanting to grab the pitchforks and torches. It should also be noted that Obama has not put a single one of these people in jail. Sure, there have been a few civil suits that have amounted to hitting up organizations for a bit of their pocket change. But countless people who committed outright fraud, albeit almost forced to by Barney Frank and the left, have skated because, to hold them accountable would require that the whole house of cards created by left be exposed.

It should also be noted from the article that a simple fix to this utterly broken credit rating system was actually proposed by Sen. Al Franken. It died - I hate to say this - in the Republican controlled House. It is just beyond belief.

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Scandalous: The Obama Administration Refuses To Prosecute HSBC For Money Laundering

HSBC, Britain's largest bank, knowingly. intentionally, and for years violated U.S. banking laws to launder billions of dollars from drug cartels and from rogue nations under sanctions. This was not simple negligence, this was purely criminal.

There should be a line of HSBC managers and compliance employees being measured now for prison suits, in addition to HSBC itself being prosecuted. Instead, the Obama administration has done precisely what they've done in virtually all high profile white collar criminal cases. They have failed to prosecute. Instead, they have given HSBC a civil fine of $1.9 billlion - a slap on the wrist for an institution that made $16.8 billion in profit in 2011.

For all of his anti-Wall St. and class warfare rhetoric, Obama has been AWOL when it comes to holding actual Wall St. criminals liable. Indeed, under Obama, if you are a criminal, the safest place to be is Wall St., a major bank or a hedge fund operator.

The economic meltdown from the housing bubble should have led to a whole host of criminal prosecutions for fraud. When sub-prime loans were being bundled and resold with a AAA rating, that was not within the realm of reasonable opinion, that was criminal. When Goldman Sachs marketed four sets of complex mortgage securities to banks and other investors without warning of the high risk, or when they "secretly bet against the investors' positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs," that is fraud. Yet the Obama DOJ refused to prosecute Goldman Sachs or anyone else.

As near as I can tell, no one from the economic melt-down of 2007 has been prosecuted by Obama - and its not hard to understand why. That melt-down was caused by Democrat policies over a period of two decades - ones fought by Bush, McCain and most other Republicans. To prosecute anyone for the crimes that occurred in the creation of the melt-down would shine a bright light on the facts - as well as the utter canard that the melt-down was caused by Republican economic policies or de-regulation.

Then there is Jon Corzine, former Democratic governor of NJ, hedge fund manager of MF Global - and the man who oversaw the fraudulent misuse and loss of $1.2 billion in customer funds. He is still walking the streets - and was a major bundler of funds for Obama in the most recent election.

And now HSBC with no criminal prosecutions of either the institution or the individual culprits. As to the institution:

US authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the “collateral consequences” of taking the bank to court.

Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.

HSBC, Britain’s biggest bank, said it was “profoundly sorry” for what it called “past mistakes” . . .

Breuer was pressed on why the US authorities had agreed to a deferred prosecution deal for the bank. He dismissed accusations that prosecutors had not been hard enough and said that the Justice Department had looked at the “collateral consequences” to prosecuting the HSBC or taking away its US banking licence. Such a move could have cost thousands of jobs, he said.

HSBC has already sacked all the senior staff involved in the scandal, and agreed to stringent monitoring – the first time a foreign bank has agreed to such oversight. “In this day and age we have to evaluate that innocent people will face very big consequences if you make a decision,” said Breuer. “I don’t think anyone is alleging that HSBC was the mastermind of the scheme,” he said. Rather it was their “incredibly lax” monitoring that was to blame. “HSBC was a vital player,” he said. “But they are not the Sinaloa cartel.”

What utter bullshit this is. One, this is a decision that HSBC is large enough that they can avoid criminal sanctions that would be used to crush smaller competitors under this scenario. Two, Breuer's attempt to minimize HSBC's actions as merely "lax monitoriong" is itself a fraud. You had employees being instructed by management to erase identifying information on transactions specifically so the U.S. authorities would not identify them as coming from unlawful sources. That wasn't lax monitoring, it was knowing and intentional money laundering. And a "my bad" from HSBC is not quite sufficient. If the only consequence for the individuals involved is that they got "sacked," that stinks of trying to hide facts that prosecution of these individuals would bring to light.

The Obama administration is utterly lawless. Obama's class warfare rhetoric is nothing but pure window dressing. This really is scandalous.

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Ann Coulter's First Pick For House Investigation

In the next week or two, Obama's Financial Crisis Inquiry Commission will render its verdict on the causes of our financial meltdown. Even if the compostion of the commission were not skewed left, given that the commission specifically excluded from the major focus of their inquiry both Fannie and Freddie, their report will be a useless work of fiction. As one person put it, that is like trying to study the causes of the Civil War while limiting consideration of slavery. It will not be a bi-partisan report and it is a measure of how useless the report will be that Obama pushed his financial overhaul bill - ostensibly designed to prevent a reoccurence of our fiscal meltdown - through Congress months ago, without any input from the commission.

Why that has happened is obvious - to protect the many Democrats who were at the epicenter of causing the financial crisis. But by ignoring the root causes, that has allowed many of the same policies that actually did cause our financial meltdown - see here - to not merely remain in place, but to be strengthened.

Thus, with Republicans now having subpoena power in the House, as Ann Coulter points out, one of the first acts should be to investigate the actual causes of our financial disaster:

. . . [T]he current financial crisis, which is the second Great Depression, was created slowly and methodically by Democrat hacks running Fannie Mae and Freddie Mac over the past 18 years.

As even Obama's treasury secretary admitted in congressional hearings, "Fannie and Freddie were a core part of what went wrong in our system." And if it's something Tim Geithner noticed, it's probably something that's fairly obvious.

Goo-goo liberals with federal titles pressured banks into making absurd loans to high-risk borrowers -- demanding, for example, that the banks accept unemployment benefits as collateral. Then Fannie repackaged the bad loans as "prime mortgages" and sold them to banks, thus poisoning the entire financial market with hidden bad loans.

Believe it or not, the loans went belly up, banks went under, and the Democrats used taxpayer money to bail out their friends on Wall Street.

So far, Fannie and Freddie's default on loans that should never have been made has cost the taxpayer tens of billions of dollars. Some estimates say the final cost to the taxpayer will be more than $1 trillion. . . .

Over and over again, Republicans tried to rein in the politically correct policies being foisted on mortgage lenders by Fannie Mae, only to be met by a Praetorian Guard of Democrats howling that Republicans hated the poor [and the minorities. The howling nearly always included the race card.] . . .

Making sure another financial meltdown does not occur should be right up there at the top of the House investigations. And indeed, I would pay money to see Barney Frank and Chris Dodd subpoenaed and forced to testify under oath at such a hearing, not to mention Franklin Raines and that Mistress of National Disaster, Jamie Gorelic.

(H/T Barking Moonbat EWS)

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Getting Tired Of Ringing The Bell

Over the weekend, Obama yet again blamed our economic mess on the "failed policies" of the Bush administration. About a week ago, Congress passed massive new financial regulation predicated on the canard that Wall St. was at the heart of the economic melt-down. Congressional Republicans ceded this narrative to Obama and the left in 2008 and have failed utterly to reclaim it since. The reality of it all, as I have pointed out ad infinitum on this blog - and as I documented in detail in the post Hurricane Sup-Prime - the cause of our economic melt-down was evisceration of lending standards by Democrats on the basis of racial politics. They introduced a racial component into what had been color-blind lending standards. They took the easy - and disastrous - route to solving a problem of home ownership for minorities that could and should have been handled very differently.

The Weekly Standard revisits the issue in their review of the IMF's former chief economist, Raghuram Rajan's new book, Fault Lines: How Hidden Fractures Still Threaten the World Economy:

. . . This is an account of what ails us that is radically at odds with the familiar tale of greedy bankers in $5,000 suits. “Almost every financial crisis has political roots,” Rajan writes. The credit market—at least as regards housing—was distorted by government policy, not by a sudden and mysterious escalation in “greed.” The trends that shook the world economy came out of Fannie Mae and Freddie Mac, out of the Federal Housing Administration, and out of their “regulator,” the U.S. Department of Housing and Urban Development.

By 2000, HUD required that low-income loans make up 50 percent of Fannie and Freddie’s portfolios. Out of “compassionate conservatism,” perhaps, the Bush administration raised that mandate to 56 percent. Rajan cites Fannie Mae’s former chief credit officer, Edward Pinto, who notes that, by 2008, “the FHA and various other government programs were exposed to about $2.7 trillion in subprime and Alt-A loans, approximately 59 percent of total loans to these categories.” Peter Wallison of the American Enterprise Institute found that government-mandated loans accounted for two-thirds of “junk mortgages.”

Another way of looking at this problem is provided in a study done by Rajan’s Chicago colleagues Atif Mian and Amir Sufi. They found that, if you look at the period between 2002 and 2005, the number of mortgages obtained in a given ZIP code “is negatively correlated with household income growth.” In other words, lenders preferred un-creditworthy borrowers to creditworthy borrowers. In a market governed by “greed” and undistorted by government pressure, such a result would make no sense.

Perhaps the greatest failing of Republicans in the last century has been their failure to get this message out to the public. It has directly resulted in the election of the same people who destroyed our economy in the first place to the position of complete control of Congress and the Presidency. It has allowed these people to pass a radical legislative agenda that doesn't merel fail to address the root causes of our financial meltdown, but actually adds more fuel to the fire. I am getting tired of ringing this bell. When will our Congressional Republicans begin doing so? The fate of our nation in 2012 may depend on it.

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Hang 'Em High - Fraud In Bond Ratings Leading To The Financial Crisis

One of the most insidious causes of the financial meltdown was the role of ratings agencies that gave triple-A ratings to tranches of subprime loans. I have been highlighting this issue for well over a year. You can read more of the background here. Finally, this issue is being addressed. And for possibly the first time in my life, I find myself in complete agreement with Democratic Senator Karl Levin. This from the NYT:

. . . The role of the rating agencies in the crisis came under sharp scrutiny Friday from the Senate’s Permanent Subcommittee on Investigations. Members grilled representatives from Moody’s and Standard & Poor’s about how they rated risky securities. The changes to financial regulation being debated in Washington would put the agencies under increased supervision by the S.E.C.

Carl M. Levin, the Michigan Democrat who heads the Senate panel, said in a statement: “A conveyor belt of high-risk securities, backed by toxic mortgages, got AAA ratings that turned out not to be worth the paper they were printed on.”

As part of its inquiry, the panel made public 581 pages of e-mail messages and other documents suggesting that executives and analysts at rating agencies embraced new business from Wall Street, even though they recognized they couldn’t properly analyze all of the banks’ products.

The documents also showed that in late 2006, some workers at the agencies were growing worried that their assessments and the models were flawed. They were particularly concerned about models rating collateralized debt obligations like Abacus.

According to former employees, the agencies received information about loans from banks and then fed that data into their models. That opened the door for Wall Street to massage some ratings.

For example, a top concern of investors was that mortgage deals be underpinned by a variety of loans. Few wanted investments backed by loans from only one part of the country or handled by one mortgage servicer.

But some bankers would simply list a different servicer, even though the bonds were serviced by the same institution, and thus produce a better rating, former agency employees said. Others relabeled parts of collateralized debt obligations in two ways so they would not be recognized by the computer models as being the same, these people said.

Banks were also able to get more favorable ratings by adding a small amount of commercial real estate loans to a mix of home loans, thus making the entire pool appear safer.

Sometimes agency employees caught and corrected such entries. Checking them all was difficult, however.

“If you dug into it, if you had the time, you would see errors that magically favored the banker,” said one former ratings executive, who like other former employees, asked not to be identified, given the controversy surrounding the industry. “If they had the time, they would fix it, but we were so overwhelmed.”

I am a big supporter of greed and virulently opposed to holding people criminaly liable for poor business judgement. But when it comes to fraud, I believe in the old adage of "hang 'em high." And it certainly sounds as if the practices involved in turning sub-prime loans into triple-A rated bonds crossed that line. I do hope Sen. Levin and his committee follow this one closely - though whether the answer is new regulation or merely enforcement of existing regulations as the answer is very much in question. The NYT also has a second article relating to this issue, Former Employees Criticize Culture of Rating Firms:

Perhaps the most riveting testimony came from Eric Kolchinsky, a former managing director at Moody’s who for most of 2007 oversaw the ratings of collateralized debt obligations backed by subprime mortgages.

“The vast majority of the analysts at Moody’s are honest individuals who try hard to do their jobs,” Mr. Kolchinsky said. “However, the incentives in the market for rating agency services favored, and still favor, short-term profits over credit quality.”

Mr. Kolchinsky added: “It was an unspoken understanding that loss of market share would cause a manager to lose his or her job.” He said he was suspended after warning in September 2007 that a batch of securities “being hyper-aggressively pushed by the bankers” had been given a rating that was too high because it was based on 2006 ratings that were about to be downgraded.

“I believe that to assign new ratings based on assumptions which I knew to be wrong would constitute securities fraud,” Mr. Kolchinsky said. . . .

Yes, it would. And heads really should roll over all of this.

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And This Will Fix Our Financial Problem?

As I look at the financial "reforms" proposed by Obama, it appears that there is precious little in the way of reform that is actually meant to address the issues raised by our financial crisis. My first question in that regard is how can Obama reform the financial system if we have not identified the problems at issue. Obama has established a commission to determine the causes of our financial break down. He wants reforms passed this summer, but the commission won't be reporting until the winter. So how the hell can he push through financial reforms months before that commission has completed its work and issued its report? Obama's push for financial reform before the commission issues its report makes a mockery of both.

Beyond that question, all of my issues with Obama's proposed financial reform are substantive. One, we know that much of the problem with the subprime mortgages came about because sub-prime loans were being bundled and given AAA ratings. This should be a central focus of financial reform, yet how that happened has been perhaps the most studiously ignored issue of the entire sub-prime mess. Indeed, the degree to which it has been ignored is making my spidey senses go tingling off the charts. On its face it appears that there has been massive fraud - and fraud that deeply implicates Fannie Mae. Moreover, having heard Barney Frank within the past year pressure Fannie Mae to upgrade the rating for certain loans, I really wonder whether this issue might not implicate some of our elected representatives also.

Two, it appears that our financial crisis came about one step removed from the sub-prime crisis. Besides apparent fraud in the bundling of tranches, you had derivatives designed to spread the risk - normally a good thing - but you also had recently enacted mark to market accounting rules that required institutions to show the value of their mortgaged backed securities as zero when the market for mortgages froze. Of course the value of the securities was not zero, but this rule caused untold chaos for those firms holding many securities - and it was what nearly froze the international credit market. Yet I see nothing being done to address those rare situations when mark to market becomes punitive and fails to give an accurate measure of the value of the securities being held.

Three, I supported the bailout of our financial institutions last year in light of the unique circumstances and the threat to credit - a meltdown that might have caused a true depression. That said, under anything short of such a unique set of circumstances, we should be not bailing out any financial institution. For capitalism to work, corporations need to be allowed to fail - whether they be AIG or GM. Yet Obama's proposed regulations give the government unlimited power to take over and bail out financial institutions and even establishes a slush fun to support such acts.

Four, Fannie and Freddie need to be completely privatized and put out of the reach of Congressional control. No one can argue that it was the demonic intersection of Fannie and Democrats that lay at the heart of our current fiscal woes. Yet they have now been, for all practical purposes, completely nationalized by the Obama administration.

Five, it was social engineering of credit qualifications that led directly to our current fiscal woes. Any financial reform should make color blind lending standards mandatory. Yet Obama proposes to put racially charged lending standards back into the front and center of our financial industry. That is anything but reform.

Six, someone needs to explain how heavily taxing banks and their profits will do anything to protect the banks customers, improve efficiency, or do anything other than further feed the trough at which at which our voracious socialist governments feed. Yet that is what is being proposed by the IMF:

Tough proposals to cut the world's biggest banks down to size by taxing their profits and pay were outlined by the International Monetary Fund tonight in an attempt to spare taxpayers another massive public bailout of the financial sector.

In measures more stringent than Wall Street and the City had expected, the fund called for the introduction of a twin-track approach to the three-year banking crisis that would both force firms to pay for any future support packages and raise new taxes on their profits and remuneration. . . .

Those are the issues I see. Michael Barone, writing at The Examiner amplifies several of them:

. . . The Dodd bill, however, has it trumped. Its provisions promise to give us one episode of Gangster Government after another.

At the top of the list is the $50 billion fund that the Federal Deposit Insurance Corp. could use to pay off creditors of firms identified as systematically risky, i.e., "too big to fail."

"The Dodd bill," Democratic Rep. Brad Sherman writes, "has unlimited executive bailout authority. That's something Wall Street desperately wants but doesn't dare ask for."

Politically connected creditors would have every reason to assume they'd get favorable treatment. The Dodd bill specifically authorizes the FDIC to treat "creditors similarly situated" differently.

Second, as former Bush administration economist Larry Lindsey points out, the Dodd bill gives the Treasury and the FDIC authority to grant an unlimited number of loan guarantees to "too big to fail" firms. Chief executive officers might want to have receipts for their contributions to Sen. Charles Schumer and the Obama campaign in hand when they apply.

Lindsey ticks off other special favors. "Labor gets 'proxy access' to bring its agenda items before shareholders as well as annual 'say on pay' for executives. Consumer activists get a brand-new agency funded directly out of the seniorage the Fed earns. No oversight by the Federal Reserve Board or by Congress on how the money is spent."

Then there are carve-out provisions provided for particular interests. "Obtaining a carve-out isn't rocket science," one Republican K Street lobbyist told the Huffington Post. "Just give Chairman Dodd and Chuck Schumer a s--tload of money."

The Obama Democrats portray the Dodd bill as a brave attempt to clamp tougher regulation on Wall Street. They know that polls show that voters strongly reject just about all their programs to expand the size and scope of government, with the conspicuous exception of financial regulation.

Republicans have been accurately attacking the Dodd bill for authorizing bailouts of big Wall Street firms and giving them unfair advantages over small competitors. They might want to add that it authorizes Gangster Government -- the channeling of vast sums from the politically unprotected to the politically connected.

That can boomerang even against the latter. Goldman Sachs employees gave nearly $1 million to the Obama campaign and $4.5 million to Democrats in 2008. That didn't prevent the Goldman from being shoved under the SEC bus. Gangster Government may look good to those currently in favor, but, as some of Al Capone's confederates found out, that status is not permanent, and there is always more room under the bus.

Ultimately, I see no reason to think that the financial reforms proposed by Obama will do a single thing to improve our economy. What a surprise, eh?

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Wall Street, A Billion Dollar Fraud & The Mortgage Meltdown

I have long been a defender of Wall St. against charges that it was the primary cause of our current economic troubles. Obama's demonization of "greedy" Wall St. is designed both to stoke populist anger and to hide the heavy hand of Democrat's race based social engineering - in which Obama took part - that is the real proximate cause of our current fiscal crisis. Moreover, I believe Obama's proposed changes to the financial regulations are not only unnecessary, but on at least several levels, deeply counterproductive (see here and here).

That said, one thing that I do support is much stronger penalties for white collar crime. For example, if the accusations in this SEC Complaint of a billion dollar fraud are true, than Goldman Sachs should be severly punished and its employee, Mr. Fabrice Tourre, locked up and the key thrown away. Do read the SEC Compalint, as it is a window into the derivatives market, a snapshot of the relationship between Wall St. and the mortgage meltdown, and a road map to a billion dollar fraud.

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Republicans Highlight The Fannie & Freddie Failures But Need More

The Republican members of the House Oversight Committee have issued a 29 page report dealing with the subprime meltdown. You can find it here. While it does tell the tale, it goes nowhere near far enough in many respects. It does not do enough to highlight the foreseeability of this mortgage meltdown, nor does it do enough to highlight the culpability of Democrats in the House and Senate, Barney Frank in particular. (For more on those topics, see my post, Hurricane Subprime) Most importantly, the House report does not put the mortgage meltdown in the larger context of economic meltdown we are facing today.

As the report sums up:

The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities for more Americans. This intervention began with two government-backed corporations, Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, creating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses. Government intervention also created “affordable” but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage. Finally, government intervention created a nexus of vested interests – politicians, lenders and lobbyists – who profited from the “affordable” housing market and acted to kill reforms. In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate. However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy. While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.

All of that is good for as far as it goes, but this report simply is far too narrow. Republicans still are not putting the "subprime meltdown" in the context of the larger economic meltdown that we are facing. They are still ceding to the Democrats by their silence the larger narrative of Democrats that our economic crisis is ultimately a failure of capitalist markets and caused by deregulation.

None of that is true. At the heart of the subprime meltdown was social engineering through government regulation. Without the subprime meltdown, we simply do not suffer our current economic crisis. That was the big domino that has knocked down all the other dominos. The failure of bond rating companies to accurately assess the risk of mortgage backed securities was a related major culprit. Mark to market accounting rules then made this whole matter exponentially worse, creating a market value of zero for a significant portion of mortgage backed securities. I could go on, but I am so tired of screaming about this while our Republicans in Congress - those who should be doing the screaming - sit on their thumbs.

Unfortunately, Obama is using the left's narrative for a massive expansion of government control of our economy. He is even pushing a vast expansion of the CRA and racially charged lending requirements. It is insanity. It is like prescribing a diet of butter and lard for a heart attack victim. But it will happen if this is the best the Republicans can do as a counternarrative. And if so, we are in deep trouble.

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Barney Frank Vies For Washinton's Most Toxic Asset

Few people have played such a disastrous role in our nation as Barney Frank. He has been a key architect of the mortgage mess that is at the heart of our economic meltdown. Since the mortgage market crashed, that hasn't slowed this utterly shameless and dangerous man. He has strong-armed the bond rating companies not to downgrade municipal bonds and floated a plan to have the federal government insure all state and local bond issues. A few days ago, he asked Fannie Mae to start accepting loans on condos that they currently deny as too risky. His latest is now to take repayment of TARP funds - money that is by law supposed to go into the general funds and be used to pay down our crippling debt - and use it to fund one of his latest brilliant plans. This from Byron York:

When President Obama announced on June 9 that some financial institutions would be allowed to repay Troubled Asset Relief Program dollars, he said the massively expensive TARP bailout had made money for the federal government. "It is worth noting that in the first round of repayments from these [TARP recipients], the government has actually turned a profit," the president said. Indeed, TARP supporters have long held out the hope that the program might be profitable.

But now Rep. Barney Frank, the chairman of the House Financial Services Committee, has come up with a proposal to spend any TARP profits before they can be returned to the taxpayers. Last Friday, Frank introduced the "TARP for Main Street Act of 2009," a bill that would take profits from the program and immediately redirect them toward housing proposals favored by Frank and some fellow Democrats.

. . . Last month, the General Accountability Office (GAO) reported that, through June 12, 2009, the government had received $6.2 billion in dividend payments. The original TARP legislation required that money made from the program "shall be paid into the general fund of the Treasury for reduction of the public debt."

Frank, however, wants to spend the money before it can be used to pay down anything. First, the "TARP for Main Street" proposal would take $1 billion "from dividends paid by financial institutions that have received financial assistance provided under…the Emergency Economic Stabilization Act" and apply it to a trust fund that Frank has long wanted to create for low-income rental housing. (The measure, unfunded, was part of last year's bailout of Fannie Mae and Freddie Mac.) Next, Frank would take $1.5 billion from TARP dividends for a so-called "neighborhood stabilization" fund. Republican critics have charged that both measures might allow federal dollars to be distributed to activist groups like the Association of Community Organizers for Reform Now, or ACORN.

The "TARP for Main Street" bill would also spend $2 billion, apparently from remaining TARP funds, to subsidize people who are delinquent on their mortgages, and another $2 billion to "stabilize multifamily properties that are in default or foreclosure." . . .

Read the entire article. I mean, its not like we need to be concerned about the size of our budget, right? Barney Frank is a clear and present danger to this country.

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Masters Of Disaster Set To Strike Again - Will The Ricci Decision Stop Them

(Picture from Protein Wisdom)

Many of the same people who brought us the current economic collapse - the left generally, with Barney Frank, ACORN and Obama in particular - are at it again. Rather than fixing the problems they created over two decades, each are doubling down. Obama is planning to vastly exand the Community Reivestment Act. Barney Frank is pushing a new version of subprime lending on Fannie Mae. ACORN is out thugging the major mortgage brokers. But a speed bump may now be in their path. The Supreme Court decision in Ricci yesterday might actually be the tool that defangs the racially charged Community Reinvestment Act and curbs some its abuses by the Masters of Disaster.

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We are in the worst recession since the Great Depression because of a catastrophic failure of the mortgage loan market. At the very heart of that failure is the racially charged Community Reinvestment Act. (For an in-depth discussion of the CRA and its impact on our economy, please see Hurricane Subprime, 1977-2000.) Without that, we have no economic collapse.

The CRA was used by the likes of ACORN and Obama to force reduced lending standards. Barney Frank and Chris Dodd pushed Fannie and Freddie to provide a vastly expanded market for these sub-prime and reduced standard loans. There were other significant contributing factors.

There were the bond rating services that inexplicably and wholly misrated mortgage backed securities. There is mark to market accounting rules that require corporation to show mortgages that cannot be sold in the current collapsed market as having no value, irrespective of the fact that they do have value. And we had the derivative market that failed catastrophically when the entire mortgage market failed. All these played ancillary roles in the meltdown that has had a severe domino effect throughout our economy.

But all of that has gone down the memory hole with the left in complete charge of the government. No hearings have been held on the causes of this economic nightmare. If you listen to Barney Frank, he has always been the paragon of fiscal responsiblity. If you listen to Obama, the CRA played no role in the meltdown, it was all the fault of evil capitalist pigs on Wall St. Indeed, instead of fixing any of the above problems, Obama, Frank, and ACORN are busy doubling down.

As to Barney Frank, this from the WSJ documents his latest insanity:

Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to "roll the dice" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity -- with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.

You read that right. After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development. . . .

Fannie and Freddie have always been political creatures under the best circumstances. But we don't remember anyone electing Mr. Frank underwriter-in-chief of the United States.

Read the whole article. Frank is, I've long maintained, a clear and present danger to the United States.

ACORN, for its part, is out doing what it does best - strong-arming financial institutions. This from the American Spectator:

ACORN, which played a starring role in creating the subprime mortgage crisis, plans to add insult to injury by harassing lenders across the nation with protests tomorrow in an effort to coerce them into supporting President Obama's Making Home Affordable foreclosure-avoidance program.

Austin King, director of ACORN Financial Justice, sent out a press release today advising of the demonstrations that are planned as part of its "Homewrecker 4" campaign. The four financial companies targeted are Goldman Sachs, HomEq Servicing, American Home Mortgage, and OneWest. . . .

ACORN plans to hit Dallas, Pittsburgh, Philadelphia, St. Louis, New York City, Wilmington (Del.), Columbus (Ohio), Houston, Little Rock, Boston, Los Angeles, Miami, San Francisco, and Seattle.

But let's not forget that ACORN helped to cause the mortgage bubble by strongarming banks into making loans they shouldn't have. And cheering them on was ACORN's lawyer, Barack Obama, who contributed to the increasingly hostile environment for banks when he represented plaintiffs in the 1995 class action lawsuit Buycks-Roberson v. Citibank. The suit demanded that Citibank grant mortgages to an equal percentage of minority and non-minority mortgage applicants. The bank settled the case three years later and reportedly agreed to beef up its lending to unqualified applicants. . . .

But the worst of the worst is Obama and his plan to put the disasterous Community Reinvestment Act on steroids as part of his 89 page proposal for massive government intervention in our economy, “A New Foundation: Rebuilding Financial Supervision and Regulation.” The CRA uses an analysis precisely like that in a "disparate impact" claim under Title VII to determine whether financial institutions are making enough loans to minorities. As it stands now, banks cannot defend against a finding of insufficient loans to minorities under the CRA by pointing to their individual portfoloio to show that they have not engaged in discrimination, but rather have applied loan standards evenly and without reference to color. The government applies the CRA to require a racially balanced result.

You will recall that yesterday, the Supreme Court decided in Ricci that application of legitimate, race neutral criteria was what Title VII required and that it would be an unlawful act of racism for an institution to throw out the results of a test because it did not provide a racially balanced result. Though decided in the context of Title VII, Ricci provides a general principle of law that should be applicable to the misuse of the CRA by our government to engage in outcome oriented, social engineering. One can only hope that some attorney, somewhere, is polishing the Ricci decision and preparing to use it as the centerpiece against the CRA. That would go a long way to defanging Obama, Frank, and ACORN.

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Authors Of Fiscal Meltdown

Our economic meltdown all stems out of the subprime crisis. There were three authors of that meltdown: Bill Clinton, Barney Frank and Chris Dodd. Clinton turned the Community Reinvestment Act into a tool of social engineering. Clinton, along with Frank and Dodd, unleashed Fannie and Freddie to create a huge market for subprime loans and then spread the poison of mortgage backed securities throughout the world economy, and gave groups such as ACORN the keys to the courthouse in an effort to strong-arm banks into making subprime loans. They pushed these programs and protected them at all turns.

Compliments of Hot Air today, here is Barney Frank in action in 2005, claiming that talk of a "housing bubble" was pure fantasy and that he intended to push us further into home ownership morass.



I include below the fold some of the numerous other posts I have done documenting Frank as being at the center of the crisis. One of the great misfortunes of the left taking the reins of power was that this is now the one true area where "we are looking" only "forward and not back." Not only does that mean that those responsible for this fiscal crisis go unpunished, more importantly, it means that the underlying problems have yet to be addressed and groups such as ACORN are funded to the tune of billions of dollars of taxpayer money in order to pursue the same goals. It is obscene. And equally as obscene is Barney Frank today engaging in a full scale rewrite of history:





Previous Posts

Barney Frank In Bed With Fannie Mae

Chris Dodd, Barney Frank & The Subprime Crisis

Barney Frank's Fingerprints

Resolution of the Initial Problems Caused By The Subprime Crisis

A Spotlight On The Left's Subprime Crisis

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