Bush and McCain warned Dems of financial melt down

[90-percent]

Run time: 04:00 https://www.youtube.com/watch?v=cMnSp4qEXNM   Posted on YouTube: September 24, 2008 By YouTube Member: ProudToBeCanadian Views on YouTube: 5759651   Posted on DU: March 27, 2010 By DU Member: 90-percent Views on DU: 707

 
I am not a righty troll!

I would appreciate my fellow DU'ers taking a look at this for their commentary and context.

Is this James O'Keefe style editing or is there merit to the points from Fox made here?

Thanks.

-90% Jimmy

[janedum]

1. OMG!! Considering, this is 2010, Barney Frank does sound like a moron.

[Xipe Totec]

2. I see no mention of the Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999-2001) which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company.

The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms and insurance companies to consolidate. For example, Citicorp (a commercial bank holding company) merged with Travelers Group (an insurance company) in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica and Travelers. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act of 1956 by combining securities, insurance, and banking, if not for a temporary waiver process.<1> The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the "financial services industry".


The banking industry had been seeking the repeal of the 1933 Glass-Steagall Act since the 1980s, if not earlier. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.

Respective versions of the legislation were introduced in the U.S. Senate by Phil Gramm (Republican of Texas) and in the U.S. House of Representatives by Jim Leach (R-Iowa). The third lawmaker associated with the bill was Rep. Thomas J. Bliley, Jr. (R-Virginia), Chairman of the House Commerce Committee from 1995 to 2001.

The House passed its version of the Financial Services Act of 1999 on July 1st by a bipartisan vote of 343-86 (|Republicans 205–16; Democrats 138–69; Independent/Socialist 0–1), two months after the Senate had already passed its version of the bill on May 6th by a much-narrower 54–44 vote along basically-partisan lines (53 Republicans and one Democrat in favor; 44 Democrats opposed).

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

If I recal correctly, the Republicans were in the majority throughout this entire fiasco. Why is it that, all of a sudden, it's the Democrats fault?

==========================================================================

2003: Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.

September: Bush administration recommend moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.

2003-2007: U.S. subprime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac.

The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage subprime loans.

http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline


So much for Alan Greenspan's "warning"


Blaming Fannie and Freddie is blaming the victim.


I call bullshit.

[midnight]

5. I agree with the deception behind this banking scam. Do you know if

this has been corrected?

The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage subprime loans.

Last I heard was that Dodd wanted to put regulation office under the federal reserve.

[RandomThoughts]

3. This is my guess, but not an expert on that topic,

There was a mind set bubble of no regulation. It goes back for many years, some are still in that mind set.

The topics on that article seem to be more against the size of those mortgage brokers. Probably also because of some of the state interactions with those associations. Clinton was for the idea to help people get mortgages, a good idea, but the profit sector started seeing it as a profit opportunity by doing ninja loans, where people would be given a loan that the bank knew they would not meet, so that they could then take house back after also getting various early high interest payments. Although it worked to well, and not enough capital was there to cover the losses, since some other average people did not have enough money to buy the house after it was foreclosed on. Not having money in middle class makes more people living in fewer houses, leaving the housing system with overvalued assets. Also the value of real estate was thought to always go up, but without buying power in the middle class, simple supply and demand drops the prices, making them underwater.

I think the Clinton programs, even with some unscrupulous profit taking, would have been fine if wages of middle class, and lower middle class would have risen, instead of tax cuts for the rich. The relative income of middle class versus expenses like health care removed the buying power from the market, so nobody was buying the houses turned over in foreclosure either. Also some big money people stopped wanting to get into a market they knew was a bubble, probably waiting for a crash to buy low.




The same Republicans, and many Democrats, removed the regulations of major banking making them also get bigger. It would be my guess the objection in those clips were more about the state involvement wanting to set up not more regulation but more self regulating systems.

The whole point is breaking up the 'to big' corporations, it was true then, true now, but back then their was a mind set that somehow the people running those institutions were not going to be corrupt, or it was thought to be their fair share to make massive profits. So it was thought that bankers, even really big banks, could handle things. And even if the article is about Fannie and Freddie, the problem was also packaged securities with ratings from organizations that were not able, or willing to give an accurate assessment of risk. Hiding risk is part of a company faking its bottom line, and able to leverage for more profit. If that is the primary motive, it happens in most sectors.

What seems to happen, is once something gets so big, and is making as much profit as it can, it has to find more ways to find profit, even if bad for society, since profit is first priority.

Social regulation can limit that first priority, and can also add competition, which actually reduces profit since a upstart can run on less profit, and out compete another institute if laws stopping monopolies are in place, or laws that stop price fixing.

I would say there was a time when competition was part of the Conservative ideas, but they have done very little to break up the big monopoly like corporations, Democrats have not done much either. I have heard of many mergers.

When was the last big break up of a corporation that you can remember? AT&T under President Carter is the last big one I remember, and that worked out real well.

Break them up into smaller sizes was true back then, and is true now.

[slipslidingaway]

4. knr - interesting and this shows what so many have said before...

both parties are to blame.

If you automatically think D = good and R = bad you will be disappointed, time and time again.

A relative of mine from the UK said they were buying a condo in Florida in 2003, I said be very careful you are not paying too much, with all the indications of a housing bubble building. They are under water, but they also are financially able to ride it out and do not need to sell this vacation home.

[Xipe Totec]

6. You take this report at face value? nt

[slipslidingaway]

7. I read what was going on at the time, no need to believe a particular

report...many reports said a housing bubble was building.

Timing the top, or bottom, is always difficult. Were the Dems complicit or ignorant of what was happening at the time ... each person has to judge for themselves.

;-)

[Xipe Totec]

8. The question is what power, if any, did they have to change events?

The report makes it sound as if the Democrats were in charge and prevented Republicans from taking action to correct the problem.

This is patently absurd.

[slipslidingaway]

9. I'm not sure that was the question, but even if it was someone has to recognize

the problem before they can change it, from this clip Frank did not see any problems with the GSE's.

Were these clips cherry picked, no doubt they were, but for me they highlight that people in both parties did not understand the risks ahead.

:shrug:

Many people were writing about the problems, they knew this would probably not end well, from a site I have read each month since late 1999, early 2000.


This is from 3/28/2000

http://contraryinvestor.com/2000archives/mo032800.htm

"...If you have followed the saga of the GSE's over the last decade or so, you know that the topic of unfair advantage (implicit government debt guarantee) has been raised again and again. In each instance, the politically connected management's of these agencies have quashed any thoughts of legislative change. Although we strongly doubt any near term legislation has a ghost of a chance of "making it all the way", it just may be that this time is different.

What clearly is different this time is that GSE debt is enormous. You know the numbers. We've reported them far too often in looking at the quarterly Fed Flow of Funds report. Sometimes the pictures help:


...We believe that last week marked one of the greatest weekly inflows to mutual funds ever. As you know, the public never buys the dips, despite what passes for information in the financial press. They always buy new highs. Always. You saw the volume last week. You know this is true. Wouldn't it simply be a fitting characterization of the top of the greatest bull market in US history."


Or this from August 2004...

http://contraryinvestor.com/2004archives/moaug04.htm


"...And, as you know, we have not even mentioned potential impacts on the large GSE's that are holding a good chunk of the remain mortgage debt in this country. Or the fallout a significant GSE problem would transmit throughout the system. You remember the GSE's. Folks like Freddie Mac, who still can't seem to be able to produce accurate financial statements and supposedly won't be able to for some time. Just be patient, right? Or Fannie who clocked in at 2.2% equity to total capital as of 12/31/03.


...For now, the US economy and financial system has proven that it can withstand an equity bubble implosion. Of course the price for that resilience has been record monetary and fiscal stimulus, record credit expansion, record trade and budget deficits, etc. We're not so sure that a meaningful setback in US real estate prices would produce a similar outcome. Especially since the monetary and fiscal authorities have largely plundered their financial ammo supply. And especially given the fact that the provocateurs of recent systemic credit largesse, the banks and the GSE's, would take a direct hit to the balance sheet. In our minds, all bubbles and not created equally nor do they deflate in similar trajectory. For now, the system has been able to withstand the bursting of one financial bubble. Let's just hope it isn't called on for an encore performance.

...Taking Stock...Again, at the moment it's just a bit too early to call for significant mortgage credit defaults ahead. Something like that just doesn't happen over night. But we suggest that at the moment, the probability for this type of occurrence to unfold has not been higher in many a moon. Roughly 35% of recent mortgage refi and purchase related activity has been ARM vehicles. Total ARM debt outstanding in the US system right now is pushing 18-20% of total mortgages outstanding. It's a very good bet that a once in a generation interest rate cycle has seen its best days. For some time now, we have been harping on the fact that wages will be critical to the forward movement of housing prices as anomalies in financing begin to deteriorate. And at least for now, wage growth in the US is negative in real terms. The year over year change in domestic wages is running close to 1% below the year over year change in the already lowballed CPI. Overlay on this the fact that 47% of total US Treasury holdings are in the hands of the foreign community, and really never has the potential for forward interest rate volatility in US financial markets been more of a question mark. We're not suggesting that the end of the world lies around the corner. You can see in the chart above that a little less than 1.3% of US mortgages are in foreclosure at the moment. But we suggest that it won't take much in the way of defaults to spark a problem, whether real or emotional in the eyes of lenders. As we mentioned, Fannie is sitting on just 2+% equity capital. In our minds, key to the US residential mortgage credit quality equation ahead will be interest rate volatility and real US wage growth. Simple enough? A deterioration in mortgage credit quality will be a process, not an event.

For now, we need to listen to what the markets are suggesting. After all, if a mortgage credit problem is to arise stateside, the markets will have at least begun to discount it well before the reality becomes a consensus viewpoint. And at the moment, the market appears to be telling us that broader housing momentum is slowing. This is where any longer term problem of heightened financial risk is going to start. As you can see below, the Philly housing index (HGX) stands at a critical technical crossroads..."


Or April 2005...

http://contraryinvestor.com/2005archives/moapril05.htm

"...Take A Load Off Fannie, And You Put The Load Right On Me...

As you know, the news regarding Fannie seems to get a little worse with each passing month. $9 billion in unreported losses related to derivatives. Another $2.8 billion in further capital problems a few weeks back. Have we heard the end of the story? Don't count on it. Even Greenspan got into the act recently when he suggested legislatively capping the ability of Fannie and Freddie to expand their balance sheets. That's all well and good, but the Fannie and Freddie's of this world do not just trade for their own account, so to speak. They also act as essentially off balance guarantors. Yes, Fannie and Freddie do buy mortgages to hold as investments. That was their raison d'etre when they were originally set up. But, much like an MBIA or Ambac who "insure" muni bond issues, Fannie and Freddie also act as guarantors in mortgage pools that are created but not actually held on the balance sheet of either FNM or FRE, in whole or in part. These pools of mortgage backed paper are owned by commercial banks, insurance companies, pension funds, etc as investments. No problem as long as there are no losses.

So as we look ahead, although Fannie and Freddie may indeed be restricted from mushrooming their own balance sheets by buying up mortgage paper as they did over the past decade, there's nothing to stop them from "guaranteeing" mortgage pools as we move forward. Nothing. And whether FNM and FRE are actually buying physical paper or simply guaranteeing paper, do you really think financial market participants are not assigning the ultimate implicit guarantee ticket to the US government? Don't fool yourself, that's exactly what's happening..."

[90-percent]

10. Thank you

Thanks for the cogent and well researched responses!

Now I will go back and study all your information to gain a better understanding of the history of this issue.

-jim