NPR's This American Life - Plato interviews Duhigg (NYT) misrepresents Dems & Fannie-Mae/Freddie Mac

[JohnWxy]

This week-end Ira Glass - This American Life talks Fannie Mae and Freddie Mac with New York Times reporter Charles Duhigg, who (allegedly) knows (about the Credit Meltdown).

Duhigg "KNOWS"? Well IF he knows then he certainly MISREPRESENTS what happpened.

Duhigg does point out that though John McCain is trying to make it sound like the whole Credit Crisis is due to FAnnie-Mae and Freddie-Mac buying sub-prime mortgages, that's only a part of the story. The problem, Duhigg correctly points out, started before Fannie and Freddie. They got into the sub-prime market afer Wall Street was heavily involved in these CDO (collateralized Debt Obligations).

Duhigg says the Dems deserve just as much blame as the Republicans in the matter of Fannie-Mae and Freddie Mac's involvement in buying sub-prime mortgages.

BULL-SHIT - THIS PROBLEM WAS CAUSED BY TWO BILLS INTRODUCED BY PHIL GRAMM, THE "FINANCIAL SERVICES INDUSTRY MODERNIZATION ACT" AND THE "COMMODITIES FUTURES MODERNIZATION ACT" (CFMA). The CFMA Gramm slipped in as rider to the Omnibus Spending Bill of 2000. THis was an 11,000 page document and almost nobody even knew they were voting on the CFMA (which was rejected twice before when brought to the floor for an open vote (though McCain voted FOR IT) when they were voting on the critical Omnibus Spending Bill (necessary at the time to keep the Government running). SEE http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=108x134032">McCain Blames Credit Disaster on Democrats/ Obama.

These bills together enabled UNREGULATED TRADING IN ENERGY FUTURES (THE SO-CALLED ENRON LOOP-HOLE) AND UNREGULATED TRADING IN COLLATERALIZED DEBT OBLIGATIONS (CDOS) AND CREDIT DEFAULT SWAPS. These bills made possible the ENRON Debacle, the stratespheric rise in gas prices the last two years, and now the greatest financial crisis this country has seen since the great depression. You CAN thank the Republicans for this disaster.

but lets get back to the show and Duhigg:

Duhigg sites a bill introduced by Republicans which Could have REDUCED(but NOT ABSOLUTELY WOULD HAVE STOPPED) Fannie and Freddy's buying of subprime mortgages. He said it wouldn't have necessarily STOPPED it but had the chance to stop it. (no details provided as to why it was a maybe rather than a definite proscription). This sounds then likea typical Republican technique of appearing to deal with a problem while leaving enough loopholes that nothing (i.e. the abuse or problem) REALLY is taken care of.

Now what Duhigg did not mentioned but was covered in USA Today Lobbyists in 'feeding frenzy' which refers to a report by Common Cause which cited an amendment that would have curbed predatory lending. NO REPUBLCANS SUPPORTED THE AMENDMENT four Democrats voted against the amendment (incl. Biden, - he could have some good reason for his vote, like maybe he wanted the amendment to go further, but the article didn't go into that_JW) (John McCain voted AGAINST IT, Obama voted FOR IT). "In a interview, Sen. Dick Durbin (D-Ill), "who sponsored the amendment, noted that opponents warned that the measure would have driven Fannie Mae and Freddie Mac out of the business of subprime lending, which "could have averted this crisis."

JUST REMEMBER THE "FINANCIAL INDUSTRY MODERNIZATION ACT" AND THE "COMMODITIES FUTURES MODERNIZATION ACT" (CFMA) SPONSORED BY PHIL GRAMM AND SUPPORTED BY REPUBLICAN PARTY (INCL. JOHN MCCAIN) ARE WHAT ENABLED UNREGULATED TRADING IN FINANCIAL DERIVATIVES (CDOs AND Credit Default Swaps) AND THAT IS WHAT CAUSED THIS FINANCIAL MELTDOWN - THE WORST SINCE THE GREAT DEPRESSION. NOBODY IN M$M WILL EVEN MENTION DEREGULATION OR THESE BILLS - THEY DON'T WANT TO BE CAUGHT INFORMING THE PUBLIC OF HOW THE REPUBLICANS CREATED THIS DISASTER.

[TreasonousBastard]

1. Here we go again, pointing fingers...

and only one side has the bad guys.

Near as I can tell, Phil Gramm can shoulder most of the blame for his incredible contribution to financial anarchy and thumbscrews, or at least waterboarding, might be in order while he rots in some dungeon. Greenspan might take some heat, too, but four Presidents and 18 Congresses gave him the green light to play God with the Fed.

Other than that, pretty much everyone can take a piece of the blame for his mess, and making it a partisan catfight serves little purpose. What "might" have averted the crisis, or even what "should" have averted it are just semi-educated guesses at this point. No amount of grinding through the legislative sausage factory could have tempered all of the fiscal atrocities going on on top of the criminal debt Shrub has put the country in.

Oh, and if, as the article promotes, bankruptcy courts could reduce the amount of a mortgage, penalizing honest bankers along with the scammers, why are the sellers of the overpriced houses and their obscene profits forgotten? Untaxed profits for many of them.

[JohnWxy]

2. 4 presidents? the Financial Services Modernization act was passed in 1998, the CFMA is 2000. Things

went to hell in a hand-basket in about 8 to 10 years.

Deregulation caused this. Deregulation has been the Republican mantra. I gave you the two laws that enabled the unregulated trading in commodities futures and financial derivatives. They were both Republican sponsored legislation. The CFMA was voted down twice before Gramm slippped it in as a rider to the 11,000 page Omnibus Spending bill which just about everyone voted for without even knowing the CFMA was in there.

This disaster is the direct result of deregulation legislation introduced the Republicans. It's a Republican caused disaster.

[JohnWxy]

3. You have to know what caused the problem to attempt a real fix. The bailout is only a short-term

patch. If there is no regulation of businesses we will just see a repeat of this situation.

[attaboy]

4. New York Times article from 1999

Reading this article you'll find that Democrat Senators Dodd and Schumer and President Bill Clinton influenced Phil Gramm's bill.

http://partners.nytimes.com/library/financial/102399banks-congress.html

October 23, 1999

Agreement Reached on Overhaul of U.S. Financial System


By STEPHEN LABATON

WASHINGTON -- The Clinton Administration and top Republican lawmakers reached an agreement early Friday to overhaul the financial system, repealing Depression-era laws that have restricted the banking, securities and insurance industries from expanding into one another's businesses.

The deal was announced about 2 A.M. after a compromise was reached over the measure's effect on lending rules for the disadvantaged, the source of months of partisan bickering between the White House and Senator Phil Gramm, the Texas Republican who heads the banking committee.

...White House officials withheld final approval of the agreement until aides could see the measure's language. But the officials indicated Friday night that, with broad support from Democrats in Congress, the measure was all but certain to be signed by President Clinton. As such, it will be one of the most significant pieces of legislation to be written by the White House and the 106th Congress, which began its term considering whether to remove Clinton and has had a bitter relationship ever since.

... "When this potentially historic agreement is finalized," Clinton said in a statement, "it will strengthen the economy and help consumers, communities and businesses across America."

...Treasury Secretary Lawrence H. Summers said in an interview, "At the end of the 20th century, we will at last be replacing an archaic set of restrictions with a legislative foundation for a 21st-century financial system." The measure, he added, "would provide significant benefits to the national economy."

...The breakthrough in Friday's legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats -- led by Christopher Dodd of Connecticut and Charles E. Schumer of New York -- forced a compromise between Gramm and the White House over the legislation's effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit.

...Dodd, whose state is home to the nation's largest insurance companies, and Schumer, with strong ties to Wall Street, have long sought legislation to repeal the Glass-Steagall Act. Both men said in interviews Friday that they moved to strike a compromise after it became apparent that the legislation might be killed, as it was last year by Gramm, over the debate about the Community Reinvestment Act.

[antimatter98]

5. This article needs to be posted everywhere.. thanks n/t

[JohnWxy]

6. It was the Commodities Futures Modernization Act which legalized Credit Default Swaps that reallly

did the damage. Who Wrecked the Economy? Foreclosure Phil

Who's to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown.
~~
Gramm's long been a handmaiden to Big Finance. In the 1990s, as chairman of the Senate banking committee, he routinely turned down Securities and Exchange Commission chairman Arthur Levitt's requests for more money to police Wall Street; during this period, the sec's workload shot up 80 percent, but its staff grew only 20 percent. Gramm also opposed an sec rule that would have prohibited accounting firms from getting too close to the companies they audited—at one point, according to Levitt's memoir, he warned the sec chairman that if the commission adopted the rule, its funding would be cut.
~~
But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history.

~~

It didn't quite work out that way. For starters, the legislation contained a provision—lobbied for by Enron, a generous contributor to Gramm—that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. (For Gramm, Enron was a family affair. Eight years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed through a rule excluding Enron's energy futures contracts from government oversight. Wendy later joined the Houston-based company's board, and in the following years her Enron salary and stock income brought between $915,000 and $1.8 million into the Gramm household.)

But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.

and from CBS' 60 Minutes The Bet that Blew up Wall Street

(CBS) The world's financial system teetered on the edge again last week, and anyone with more than a passing interest in their shrinking 401(k) knows it's because of a global credit crisis. It began with the collapse of the U.S. housing market and has been magnified worldwide by what Warren Buffet once called "financial weapons of mass destruction."

They are called credit derivatives or credit default swaps, and 60 Minutes did a story on the multi-trillion dollar market three weeks ago. But there's a lot more to tell.

As Steve Kroft reports, essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages.

~~

It would have been illegal during most of the 20th century, but eight years ago Congress gave Wall Street an exemption and it has turned out to be a very bad idea.
~~
~~

The vehicle for doing this was an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight, on page 262 of the legislation, Congress pre-empted the states from enforcing existing gambling and bucket shop laws against Wall Street.

and here's the excerpt strait from the CFMA, page 262:

PREEMPTION. This title shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of bucket shops (other than antifraud provisions of general applicability) in the case of (1) a hybrid instrument that is predominantly a banking product; or
(2) a covered swap agreement.>



thank you for bringing this up. I love pointing out how Phil Gramm slipped in the CFMA which legalized betting by banks and made sure it was not regulated. It was the unregulated trading in CDSs that brought down the economy. It enabled the ENRON swindly and collapse, and also by enabling trade in CDSs also produced the wild run-up in prices of virtually all commodiites from 2007-2008.

http://hsgac.senate.gov/public/_files/052008Masters.pdf#page=7">Michael W. Masters Managing Member - Portfolio Manager Masters Capital Management - testimony before the U.S. senate

"The really shocking thing about the Swaps Loophole is that Speculators of all stripes
can use it to access the futures markets. So if a hedge fund wants a $500 million
position in Wheat, which is way beyond position limits, they can enter into a swap with a
Wall Street bank and then the bank buys $500 million worth of Wheat futures."

[attaboy]

10. Credit Default Swaps, Enron and Robert Rubin

What is the problem with credit default swaps? They are insurance. Why shouldn't a business take out insurance when the federal government requires them to make highly risky loans? Why shouldn't anyone doing business with a company making highly risky loans take out insurance incase the risky loans default and the company cannot meet its obligations? I would take out insurance. The federal government set a playing field of making highly risky loans. The business community responded by taking out insurance against the risk. It is a natural thing to do. Forcing people to make highly risky loans is not natural. It is 'a rebour', meaning it goes against the grain. People responded by taking out insurance to ease the risk the federal government was imposing.

The fact that people began trading credit default swaps and making money from it should not be a surprise. Some of the default swaps became very valuable as the artificial housing boom became shakier and shakier.


Commodity Futures Modernization Act,which exempted credit-default swaps from regulation was signed into law by Bill Clinton.



National Review Online

January 3, 2003 9:45 a.m.
Covering Rubin
Senate Dems work for the ex-Treasury secretary.

The New York Times reports Friday that "A report by the staff of a Senate panel has concluded that Robert E. Rubin, chairman of Citigroup's executive committee (one of Enron's largest creditors), "did not act contrary to law" in the weeks before Enron collapsed by suggesting to the undersecretary of the Treasury that he urge major credit-rating agencies to delay issuing a downgrade of Enron.

Citigroup stood to lose more than $1 billion that it had lent to Enron if its credit rating was downgraded and the company subsequently collapsed. Mr. Rubin had been asked to make the call by the head of Citigroup's investment banking unit at the time, Michael A. Carpenter, according to the staff report by the Senate Governmental Affairs Committee.

Robert Rubin was Sec. of Treausry under Bill Clinton. Being Sec. of Treas. he should have known better than to do this sort of thing.

http://www.nationalreview.com/levin/levin010303.asp

[JohnWxy]

12. Commodity Futures Modernization Act -sponsor Phil Gramm slipped in as rider to Omnibus Spending Bill

The Bet that Blew up wall Street

It (The CFMA) not only removed derivatives and credit default swaps from the purview of federal oversight, on page 262 of the legislation, Congress pre-empted the states from enforcing existing gambling and bucket shop laws against Wall Street.

"It makes it sound like they knew it was illegal," Kroft remarks.

"I would agree," Dinallo says. "They did know it was illegal. Or at least prosecutable."

In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously. (yes, because Phil Gramm slipped it in as a rider to the Omnibus Spending bill and basically nobody in Congress new they were voting for it. The bill previously couldn't get out of committee. THat's why Gramm stuck it onto the Omnibus Spending Bill as rider. He knew everybody had to vote for that bill and nobody would see the CFMA in this 11,000 page document.__JW)

[JohnWxy]

7. the compromise referred to in the article you posted referred to the Clinton WH giving-in on

reviews of institutions.

also from the New York Times: http://partners.nytimes.com/library/financial/102399bank-analysis.html

"Community-lending advocates and banking industry officials found one thing to agree on Friday about the rewrite of the Community Reinvestment Act: It is not going to improve lending in poor neighborhoods."
~~

The Clinton White House wanted closer monitoring of lending institution compliance with the Community Investment Act but Graham wanted little to no compliance reviews. The "compromise" was that lending institutions would:

"undergo a community-lending compliance examination once every five years if their last exam resulted in an "outstanding" grade, and every four years if they last scored "satisfactory." Under current law, examinations are required every 18 months.

"In their desire to please the financial industry, the Administration has agreed to substantially reduce the impact of C.R.A.," said Chris Saffert, a legislative representative for the Association of Community Organizations for Reform Now. "Phil Gramm completely walked over the Administration. And for them to be saying this is a good bill is a poor reflection on their priorities."
------------------------------------------------------------------------------------------------------------------------------

Clinton administration officials warned Greenspan about Predatory lenders but Greenspan blew them off.

Later during the Cheney - Rove administration the Office of the Comptroller of the Currency prevented States Attorney's Generals from taking legal action against predatory lenders using an obscure law from the 19th century to block them from taking action.

also an argument being circulated about FAnnie & Freddie being players in the sub-priime mortgage crisis is bogus see: Fannie Mae and Freddie Mac were victims, not culprits - Business Week.com

[attaboy]

9. New York Times, Credit Default Swaps, Enron and Robert Rubin

reviews of institutions.

also from the New York Times: http://partners.nytimes.com/library/financial/102399ban...

1.)"Community-lending advocates and banking industry officials found one thing to agree on Friday about the rewrite of the Community Reinvestment Act: It is not going to improve lending in poor neighborhoods."


~~

2.)The Clinton White House wanted closer monitoring of lending institution compliance with the Community Investment Act but Graham wanted little to no compliance reviews. The "compromise" was that lending institutions would:

2a.) "undergo a community-lending compliance examination once every five years if their last exam resulted in an "outstanding" grade, and every four years if they last scored "satisfactory." Under current law, examinations are required every 18 months.

3.)"In their desire to please the financial industry, the Administration has agreed to substantially reduce the impact of C.R.A.," said Chris Saffert, a legislative representative for the Association of Community Organizations for Reform Now. "Phil Gramm completely walked over the Administration. And for them to be saying this is a good bill is a poor reflection on their priorities."
--------------------------------------------

1.)The reporter was wrong. There was plenty of lending, too much lending.

2.-2a.)The Clinton administration proposed a compliance review every 18 months. Along with the review every 18 months the community activists having read the bank's review would pressure the banks to make more loans if their loan ratio wasn't satisfactory under the new federal law. Gramm was trying to prevent the smaller banks from being harassed every 18 month to make more risky loans. It turned out to be a good thing he was able to reach a compromise.

3.)Can you image if the CRA could have been more insistent?

What is the problem with credit default swaps? They are insurance. Why shouldn't a business take out insurance when the federal government requires them to make highly risky loans? Why shouldn't anyone doing business with a company making highly risky loans take out insurance incase the risky loans default and the company cannot meet its obligations? I would take out insurance. The federal government set a playing field of making highly risky loans. The business community responded by taking out insurance against the risk. It is a natural thing to do. Forcing people to make highly risky loans is not natural. It is 'a rebour', meaning it goes against the grain. People responded by taking out insurance to ease the risk the federal government was imposing.

The fact that people began trading credit default swaps and making money from it should not be a surprise. Some of the default swaps became very valuable as the artificial housing boom became shakier and shakier.


Commodity Futures Modernization Act,which exempted credit-default swaps from regulation was signed into law by Bill Clinton.



National Review Online

January 3, 2003 9:45 a.m.
Covering Rubin
Senate Dems work for the ex-Treasury secretary.

The New York Times reports Friday that "A report by the staff of a Senate panel has concluded that Robert E. Rubin, chairman of Citigroup's executive committee (one of Enron's largest creditors), "did not act contrary to law" in the weeks before Enron collapsed by suggesting to the undersecretary of the Treasury that he urge major credit-rating agencies to delay issuing a downgrade of Enron.

Citigroup stood to lose more than $1 billion that it had lent to Enron if its credit rating was downgraded and the company subsequently collapsed. Mr. Rubin had been asked to make the call by the head of Citigroup's investment banking unit at the time, Michael A. Carpenter, according to the staff report by the Senate Governmental Affairs Committee.

Robert Rubin was Sec. of Treausry under Bill Clinton. Being Sec. of Treas. he should have known better than to do this sort of thing.

http://www.nationalreview.com/levin/levin010303.asp

[JohnWxy]

11. re CRA Gramm got what he wanted reviews every 5 or 4 yrs is like no review at all. Clinton and Dems

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=109x35162#36677


wanted reviews every 18 months.


TIMELY reviews would have brought action to stop basically fraudulent practices (such as putting fantasy figures for incomes on loan application forms) that predatory lenders were engaging in and which produced mortgages that were bound to default.

CRA was clearly not meant to promote predatory lenders lieing on loan applications and committing other irresponsible and fraudulent acitivities. Many Dems were furious at Clinton for giving in on this. I agree with them to a degree but I give Clinton some slack here as he knew there were other agencies monitoring lenders activities.

Where Clinton was wrong was to not look into the future (perhaps he didn't have a crystal ball) and see that regulators in the future would do NO Regulating - (at the time this act was signed I don't think Clinton knew for sure if the next administration would be Democratic or Republican). Had the CRA been passed in the form the Democrats wanted (but Gramm was adamantly opposed to (close monitoring of lenders practides) the questionable and fraudulent lending practices of predatory lenders would have been spotted (and assuming the following administration wanted to do anything about it) would have been stopped and the mortgages with high default rates never would have been produced. IF THE PREDATORY LENDERS KNEW THEY WERE GOING TO GET REVIEWED THAT IN ITSELF WOULD HAVE HAD THE AFFECT OF STOPPING FRAUDULENT (e.g.putting false statements on loan applications) PRACTICES.


But the Cheney - Rove government not only was disinterested in policing predatory lenders they actually fought those who wanted to take action to reign in Predatory Lenders. The Office of the Comptroller of the Currency actually prevented Attorneys General from all 50 states from using Consumer Protection Laws to stop Predatory Lenders from using questionable even fraudulent practices.

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.
~~
~~

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.

~~
~~

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.

Obviously, something could have been done about predatory lending but the Cheney-Rove government stopped all such actions. And even before Cheney-Rove took over the government, Clinton administration officials tried to get Greenspan to do something about predatory lenders but he blew them off. - (the market would police itself)



THANK YOU FOR BRINGING UP THE COMMODITY FUTURES MODERNIZATION ACT - Phil Gramm's baby - This was added as rider to the Omnibus Spending Bill 2000 (just like these earmarks that are talked about today) - Virtually nobody knew the CFMA (which had not been able to get out of committee) was even added to the 11,000 page OSB and as a Congressional staffer said "Nobody in either chamber had any knowledge of what was going on or what was in it,"

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=109x35162#36674

"But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history."

It was the legalization of Credit Default Swaps and making sure they were not regulated that really blew up Wall Street and the entire economy. The banks could sell much more of the high rate (and higer risk) Collateralized Debt Obligations to Institutional Investors with CDSs because they told the Institutional Investors that the CDSs would protect them against default. THis then created a huge demand for high rate CDOs (and sub-prime mortgages) which drove lenders to beat the bushes for anybody they could sign up to a sub-prime mortgage.

From "The Bet that Blew up Wall Street" on 60 Minutes (CBS)

In the early part of the 20th century, the streets of New York and other large cities were lined with gaming establishments called "bucket shops," where people could place wagers on whether the price of stocks would go up or down without actually buying them. This unfettered speculation contributed to the panic and stock market crash of 1907, and state laws all over the country were enacted to ban them.

"Big headlines, huge type. This is the front page of the New York Times," Dinallo explains, holding up a headline that reads "No bucket shops for new law to hit.”

"So they'd already closed up 'cause the law was coming. Here's a picture of one of them. And they were like parlors. See," Dinallo says. "Betting parlors. It was a felony. Well, it was a felony when a law came into effect because it had brought down the market in 1907. And they said, 'We're not gonna let this happen again.' And then 100 years later in 2000, we rolled them all back."

The vehicle for doing this was an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

And as they point out on the 60 Minutes report, on the last page of the CFMA is the language that preempts the states from enforcing their anti "bucket-shop" laws against banks engaged in buying and selling Credit Default Swaps.

[attaboy]

17. FRONTLINE: The Warning

FRONTLINE: The Warning

http://www.pbs.org/wgbh/pages/frontline/warning/view/


"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

"Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.""



Greenspan, Rubin and Summers shut her down when she tried to warn the Congressional oversight committee.


Do you really want to continue blaming only the Republicans?

[JohnWxy]

13. the Community REinvestment act never forced anybody to make a subprime loan.

I realize this runs counter to the fantasy world Conservatives are stuck in. But I offer these insights for those who prefer to stay in touch with reality the rest of us live in._JW

http://www.ocregister.com/articles/loans-subprime-banks-2228728-law-lenders?referrer=digg

http://2securedloans.blogspot.com/2008/11/most-subprime-lenders-werent-subject-to.html


Most subprime lenders weren't subject to federal lending law

Did a 31-year-old law giving poor people a break at the bank accidentally break the bank?

A lot of opinion leaders think so. From the editorial pages of The Wall Street Journal to talk shows to the op-ed page of The Register, people are charging that the Community Reinvestment Act of 1977 forced banks to make bad loans, leading to financial Armageddon.

There's just one problem: It isn't true.

A Register analysis of more than 12 million subprime mortgages worth nearly $2 trillion shows that most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.

Among our conclusions:

Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.

State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.

Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren't subject to the law, though some were owned by banks that could choose to include them in their CRA reports.




~~
~~


Bob Davis, executive vice president of the American Bankers Association, which lobbies Congress to streamline community reinvestment rules, said "it just isn't credible" to blame the law CRA for the crisis.

"Institutions that are subject to CRA – that is, banks and savings asociations – were largely not involved in subprime lending," Davis said. "The bulk of the loans came through a channel that was not subject to CRA."



The criticisms of the reinvestment act don't make sense to Glenn Hayes. He runs Neighborhood Housing Services of Orange County, which works with banks to provide CRA loans to first-time homebuyers. In its 14-year history, the nonprofit has helped 1,200 families buy their first homes. Score so far: No foreclosures and a delinquency rate under 1 percent.

"It is subprime that's really causing it," Hayes said of the mortgage crisis. "But CRA did not force anyone to do subprime."
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[attaboy]

14. The Federal government lead the way

"Most subprime lenders weren't subject to federal lending law"

The CRA set the playing field. It led the way. The other lenders followed their lead. Why wouldn't they get into the money making scheme? It was Federal government approved and the Federal government was supplying the place to dump the risky loans: FannyMae and FreddieMac. Small mortgage loan companies didn't need to be forced to make the loans once the federal government made it standard money making practice.

[JohnWxy]

15. I gotta bookmark this. Only a Republican would use a legitimate law to rationalize his own larceny.

They asked Willy Sutton why did he rob banks. HE said "Cuzz that's where the money is."


If Sutton was a Republican, at trial, I'm sure his defense would be "the bank depositors MADE me do it." "Those people who put all that money in the banks, That's why I ended up robbin banks. They made me do it, by putting all that money there. Don't blame ME. It's THERE fault. THEY are the ones who should go to jail for bank robbery. NOT ME!"


That's the argument you advance for predatory lenders engaging in larcenous lending practices. Signing up people to loans they knew would not be able to handle the payments (either because the lenders shill entered false information for income in the loan application or because he knew they wouldn't be able to handle the payments later when their rate went up).

Here's a good article from BusinessWeek.com about how the CRA can't be blamed for the Deregulation Disaster and for Predatory lending practices by institutions not covered by CRA nor regulated by those who were supposed to be regulating lenders.

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (Indications that the CRA Deterred Irresponsible Lending in the 15 Most Populous U.S. Metropolitan Areas).

Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

(more)

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html


NOTE the statement: "CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses"... I have always contended that the trade in HIGH RATE CDOs(composed of sub-Prime loans) created the demand for sub-Prime loans because the "investors" were not interested in normal rate loans. They wanted a higher rates of return. But how could institutional investors get into higher risk investments like this? BECAUSE THE WALL STREET BANKS WERE SELLING CREDIT DEFAULT SWAPS WITH THEM to the institutional investors telling them the CDSs would protect them from DEFAULT LOSSES. Now if you thought you could put money into a high return investment with virtually no risk (you were insured against loss of pricipal) wouldn't you put your money into 'such a deal'?

So Credit Default Swaps (unregulated, thanks to Phil Gramm's Commmodity Futures Modernization Act) made the high rate CDOs sellable. They never would have sold trillions of dollars of these higher risk instruments (to institutional investors) without the "insurance" of the Credit Default Swaps.

OF course, it was all a scam - but the banks were scamming themselves too, because they BOUGHT CDSs to cover themselves in case they had to make good on the CDSs they sold to the investors who bought the CDOs. The only thing is they bought them from AIG!!!!


SO MUCH FOR THE IDEA 'THE MARKET WILL POLICE ITSELF'. SHIT! WHAT IDIOT THINKS PEOPLE CAN BE TRUSTED WHEN THEY THINK THEY CAN MAKE A FASTER BIGGER BUCK! ....PHIL GRAMM AND THE REPUBLICAN (CORPORATE LOBBYIST) PARTY, THAT'S WHO!!


WITH THE DEREGULATION DISASTER USHERING IN THE REPUBLICAN DYSTOPIA, AND THE ENORMOUS ECONOMIC AND HUMAN COSTS BEING INCURRED AND ENDURED.....SHIT, WHO THE FUCK NEEDS AL KAIDA?? ..WE GOT THE GOOD OL' CORPORATE LOBBYIST PARTY TO DO US IN (ALL IN THE NAME OF GREED).

[attaboy]

18. FRONTLINE: The Warning

FRONTLINE: The Warning

http://www.pbs.org/wgbh/pages/frontline/warning/view/


"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

"Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.""



Greenspan, Rubin and Summers shut her down when she tried to warn the Congressional oversight committee.


Do you really want to continue blaming only the Republicans?

[attaboy]

19. Predatory lending

I'm not going to defend the former car salesmen or landscaper who went into mortgage lending when things were hot, I'm not going to defend those guys who got their mother or grandmother to refinance their home so they could make a commision.


American Public media: Marketplace
Monday, December 21, 2009


40% of modified mortgages in trouble

Despite the Obama administration's push to keep people in their homes through mortgage modifications and lenders cutting payments for millions of borrowers, a government report suggests the effort may be falling short. Amy Scott reports.

AMY SCOTT: Four years ago landscape architect Bill Donnelly took out an interest-only loan to buy a house in Washington, D.C. The interest rate was fairly high, but he and his wife figured they'd refinance.

BILL DONNELLY: Being a first-time homebuyer, I knew nothing about buying a home. And everyone seemed to think that, you know, I wasn't getting in that far over my head.

Then the bottom fell out of the housing market. And the plan to refinance fell apart. Eventually Donnelly turned to mortgage modification. His lender temporarily cut his monthly payments by close to 20 percent. He's waiting for a permanent deal. But it may not be enough.

DONNELLY: Things change in life, and we recently had a second child. And so our cost's going up in childcare. So we're still going to struggle with whatever they come back with.

40% of modified mortgages in trouble | Marketplace From American Public Media





The guy gets himself into hot water because he doesn't do any homework before buying a house. His lender provides him with some relief and he jumps right back into the hot water by having a second child. He needs government sponsored child care. He needs to be able to own a house but have the responsibilities for owning the house be congruent to that of the responsibilities of a renter. help that man. He has a family!

[JohnWxy]

8. Predatory lending really took off after Cheney took over. 50 states attorney's general were trying

to take action against predatory lenders but the Office of the Comptroller of the Currency blocked them..

Eliot Spitzer wrote in the Washington Post:

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

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.

~~
~~
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.

[JohnWxy]

16. Frank on Daily show: "In 2004 when Bush wanted Fannie and Freddie to do more home ownership,"

BArney Frank on Daily Show also debunks the Fannie-Freddie hypothesis:

"In 2004 when Bush wanted Fannie and Freddie to do more home ownership I said it was a mistake. We wanted affordability."
Barney Frank wanted more support for rental vouchers.




http://kentraci1011.newsvine.com/_news/2009/07/14/3024093-barney-frank-on-the-daily-show-i-was-very-critical-of-this-effort-to-make-people-into-homeowners-when-they-couldnt-afford-it


Congressman Barney Frank in an Interview with John Stewart on the Daily Show last night said he had opposed using Fannie Mae and Freddie mac as vehicle for home ownership for low income buyers.

" I wanted Fannie and Freddie to be very active in building rental property." said Congressman Frank to a befuddled Stewart.

Congressman Frank insisted it was Republicans who supported using the government programs to assist low income home buyers in getting out of rental properties. "They had this view, it was part of compassionate conservatism, their view was: let's make them homeowners."

Frank also told the story of an exchange he had with President Bush's Secretary of Housing and Urban Development, Alphonso Jackson. "I had this debate with Alphonso Jackson the Secretary of HUD. He said let's cut off rental vouchers for people after five years. I said sure, if they're not poor after five years. He said why don't you want to cut off rental vouchers after five years? I said where are they going to live? He said we're going to make them home owners."

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and here's a copy of a letter, signed by Frank three other Congressmen and five Senators appealing for continued support of rental vouchers by HUD: http://www.stpaulpha.org/forms/BdRpt-Att3-Industryletter04092004.pdf signed April 9, 2004

"We are concerned that HUD’s interpretation of the FY2004 omnibus appropriations language will result in a funding shortfall that was
not envisioned by the Congress, while at the same time failing to use all the voucher renewal funds appropriated by Congress. Under
HUD’s interpretation, HUD will fail to spend $175 million to $310 million of the funds Congress appropriated for voucher renewals."