"No one wanted to stop that bubble. It would have conflicted with the president's own policies."

[UpInArms]

http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&hp=&pagewanted=all

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

<snip>

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

a huge read, but worth the time spent

[UpInArms]

1. some more:

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

[ixion]

2. I, for one, was very concerned about the new bubble as early as 2k2

the housing market should never be 'hot'. No fundamental requirement of maintaining the social order should be speculated on. When I first heard * announce the so-called 'ownership society' I was concerned. As the market continued, I became downright terrified. Houses worth no more than 150k were selling for 300+. I shopped around quite a bit in those years, I think more to just keep an eye on what was going on. I put an offer in on one place, but as soon as I read the fine print I broke off the deal. The devil is in the details, as the saying goes, and the housing bubble was a textbook case. Anyone who took the time to read the fine print should have been terrified. Buying a house on an 80/20 interest only loan, you may as well have been buying it on a credit card.

The whole charade was sheer lunacy, in my opinion.

[UpInArms]

3. here's an article from March 2006

http://www.howestreet.com/articles/index.php?article_id=2137

Ownership Society Failures

THE DETROIT NEWS is reporting that defaults are soaring in Michigan:

"Wayne County ranks worst in the nation for foreclosures.

"Katherine Ben-Ami closed on 11 homes a minute Wednesday.

"If she were the world's fastest real estate agent, that would be good news, but the sad fact is Ben-Ami is an attorney for the Wayne County Sheriff's Office, and in 35 minutes, she supervised the auction of 379 foreclosed Wayne County homes.

"'Wednesday's always been a big day,' she said, 'but not this big...'

"After recording more than 9,000 foreclosures in 2005, Wayne County ended January with 3,364 homes in active foreclosure, the highest of any county in the nation by more than 1,000, according to statistics compiled by Foreclosure.com of Boca Raton, Fla.

"The numbers illustrate one of cruelest side effects of the region's economic troubles. Every repossessed home is a broken American dream for families, who lose not only money and a home, but also give up years of happy memories and hopes for a solid future.

"The burgeoning foreclosure rate also takes a toll on the larger community.

"Lenders, stuck with the homes, lose up to $50,000 per house as they clear them out at below-market prices. That can lower property values in neighborhoods, pushing more homeowners to move out, and eventually hurt property tax collections for local governments.

"'Foreclosure depresses an area in a variety of ways,' said LaSalle Bank chief economist Carl Tannenbaum.

"And these days, southeast Michigan has plenty to be depressed about.

...more...

TPTB have been turning a blind eye to this for a very long time.

[Tansy_Gold]

9. I, for two.

Right around 2000-2002 is when the housing boom in the far west suburbs of Phoenix started, more like a mushroom cloud than a mere mushroom. I was living there at the time and saw it first hand. By 2005, I saw people working for $7/hour living on the proceeds of refinancing their homes every six months. It was insanity. It couldn't last.

But no one listens, do they?



Tansy Gold

[geckosfeet]

4. a bit more,,,

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

"How," he wondered aloud, "did we get here?"

And the author of course knows the answer to that simple question. An answer that still eludes bUSh and his shithead unregulated free market cronies.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

I agree with the "own their own home" part. The piece about markets do best when left alone is a republican wet dream, propagated by the mercenary investment class and their ilk. The ever popular "you can get rich quick if we just let you do yours behind closed doors" philosophy.

This appeals to corpos whose unscrupulous greed will dominate every and any transaction that they enter into. The problem is that those are the exact businesses and people who need to be regulated very closely.

[UpInArms]

5. and the mal-administration tried to silence everyone who raised the warning

A soft-spoken Texan, Mr. Falcon ran the Office of Federal Housing Enterprise Oversight, a tiny government agency that oversaw Fannie Mae and Freddie Mac, two pillars of the American housing industry. In February 2003, he was finishing a blockbuster report that warned the pillars could crumble.

Created by Congress, Fannie and Freddie — called G.S.E.’s, for government-sponsored entities — bought trillions of dollars’ worth of mortgages to hold or sell to investors as guaranteed securities. The companies were also Washington powerhouses, stuffing lawmakers’ campaign coffers and hiring bare-knuckled lobbyists.

Mr. Falcon’s report outlined a worst-case situation in which Fannie and Freddie could default on debt, setting off “contagious illiquidity in the market” — in other words, a financial meltdown. He also raised red flags about the companies’ soaring use of derivatives, the complex financial instruments that economic experts now blame for spreading the housing collapse.

Today, the White House cites that report — and its subsequent effort to better regulate Fannie and Freddie — as evidence that it foresaw the crisis and tried to avert it. Bush officials recently wrote up a talking points memo headlined “G.S.E.’s — We Told You So.”

But the back story is more complicated. To begin with, on the day Mr. Falcon issued his report, the White House tried to fire him.

[Tansy_Gold]

6. ‘We Told You So’

[Hugin]

7. "The president spent years pushing a recalcitrant Congress to toughen regulation"

Hahahaha! It's killin' me! Hahahaha! Who writes this stuff? Hahahahaha!

*gasp* Wait... Wait... Here's some more!

"He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors." (Unsaid... And expand his buddies wallets.) Hahahaha!

:rofl:

Revisionist history is so much fun... Is this from the Onion? Hahahaha!


:hi: Tansy_Gold

[Tansy_Gold]

8. MTE, Prag, MTE

My thoughts exactly.

Yeah, and essentially by minority votes to keep him and his cronies in power.

:hi:

[Waiting For Everyman]

10. To pretend the sharky subprime loans were for the benefit of homeowners is bullshit.

It was to give the bankers something to create their funny-money derivatives off of. They all knew those payments were impossible, and would default.

[Tansy_Gold]

11. The derivatives were a collateral benefit, but I don't think

they were the primary motivation. They may been, but there were other, much more overt, benefits to be gained.

I don't think anyone really knew how explosive derivatives could be until Enron began playing that game in the very late 90s. Their implosion in 2000, just as the major housing boom was starting, may have provided the impetus for the bundling of MBSes -- move all these toxic mortgages off the banks' books as direct loans and make a fat profit off them -- but I don't think that was the original intent.

Much more likely, I think, is that the banks (a.k.a. all the boosh backers, pukes, etc.) saw the potential for massive foreclosures as a way of obtaining possession of the property and further enslaving the working poor. They do NOT, in fact, want anything even remotely resembling an ownership society as it was described. They wanted/want themselves to have it all.


Tansy Gold, who don't have much

[Igel]

16. Derivatives became a sort of goal late in the game.

Early 2000s, after being innovated in 1997. It was a way for bad loans to be passed through a mortgage issuer, so that the issuer made money and got funds for issuing more loans.

But the political pressure to issue more subprime loans started years before the derivative market became "hot" and trendy. It was a stupid idea at the time, but politically trendy and expedient (at the time, it was politically trendy and expedient on the left of the political spectrum, and was only later embraced by the right).

[acmavm]

12. THANK YOU! I was wondering when someone would fucking point out

that it's not the damn mortgages, it's the gambling on bad debt that put us where we are today.

Hellfire yes, bad MORTGAGES started the ball rolling. But they NEEDED the bad mortgages in order to get their sleezy schemes rolling. And for every bad mortgage, they turned that into two, three, or four bad debts that just kept growing and the predators kept selling 'em.

Shit.

[UpInArms]

13. Lew Ranieri should be a household name

A Street Pioneer Strikes Again Lewis Ranieri is back with a new company, a bigtime IPO, and a big new idea for banks.

By Kimberly L. Allers; Lewis Ranieri
October 13, 2003

(FORTUNE Magazine) – Lewis Ranieri is besieged by thoughts--an endless parade of business ideas, inventions, novel approaches, and the occasional house design. "It's a plague," says the 56-year-old Wall Street icon, immortalized by Michael Lewis in his rollicking tale about Salomon Brothers, Liar's Poker. "I don't know why my mind works this way." Sitting in his modest Long Island offices, the bearded and portly "Lewie," as he's known, interjects new thoughts before completing old ones, truncates his sentences with long pauses and slight stammers, and usually laughs long before he reaches a punch line--his whole upper torso bobbing up and down.

In the 1980s Ranieri gained notoriety as a loudmouthed prankster when he was a trader and later head of the mortgage securities and real estate division at Salomon. He was known for giving instructions by screaming across a room while standing on top of a desk and waving his arms like a referee. Tales of his fierceness at work are also legendary. "It's not all true," Ranieri offers with a smile.

What is true is that Ranieri virtually built from scratch the $5 trillion mortgage-backed security market and in the process helped spearhead a populist movement to make home mortgages more affordable. Now the "father of the mortgage-backeds" is back with a new company, a bigtime IPO, and his latest big idea: helping banks manage their property problem. In an exclusive interview, Ranieri sat down with FORTUNE to talk about his latest project.

The company is American Financial Realty Trust (AFR, $14), and Ranieri is its chairman. In June the real estate investment trust, or REIT, raised $804 million in its initial public offering, the largest IPO for a REIT in six years and the largest IPO so far in 2003. AFR already has $2 billion in assets and offers a dividend yield of 6.9%, well above the 5.77% average for REITs. It is also the only REIT of its kind, serving financial institutions and banks.

For lenders, property has always been the biggest pain in their balance sheet. Branches and buildings can take up a big portion of a bank's assets. As of September 2002, U.S. banks owned $91.2 billion of property. The problem, explains Paul Reeder, director of the real estate group at SNL Financial, is that "property is a nonperforming asset. They'd rather divest themselves of their branches and free up the cash for other investments." Banks used to sell off unwanted branches one by one or region by region. (Selling a nice bank building to a nonbank buyer, by the way, is not easy--not when each one houses a 70,000-pound, reinforced-concrete nightmare, otherwise known as the vault.) Even owning property they want to keep creates operating expenses and clogs up a balance sheet with nonperforming assets.

Ranieri first began "noodling" (as he calls it) over the problem a couple of years ago. He decided there was a big opportunity for a company that could apply a sale-leaseback model to the banking business. In that arrangement a company buys entire lots of properties (in this case, local bank branches) and leases back to the seller any buildings it still wants--with terms that give the bank flexibility and control of the property. The sale-leaseback structure has become increasingly popular with movie theaters, chain restaurants, and even prisons in recent years (see sidebar). And local entrepreneurs have long offered it for banks on a limited regional basis. But the investment costs of applying it on a nationwide scale--combined with the logistical challenges of managing bank property--made it daunting to imagine a profitable national business.

...more of the beginning of the end at link...

Lewis S. Ranieri: Your Mortgage Was His Bond - The bond trader turned home loans into tradable securities

NOVEMBER 29, 2004

The past quarter-century has seen a revolution in finance. It's felt every time a homeowner refinances a mortgage or signs up for a credit card. No one person can claim to have lit the fuse for this revolution -- but Lewis S. Ranieri was holding the match. Joining Salomon Brothers' new mortgage-trading desk in the late 1970s, the college dropout became the father of "securitization," a word he coined for converting home loans into bonds that could be sold anywhere in the world. What Ranieri calls "the alchemy" lifted financial constraints on the American dream, created a template for cutting costs on everything from credit cards to Third World debt -- and launched a multibillion-dollar industry.

Salomon and Bank of America Corp. (BAC ) developed the first private mortgage-backed securities (MBS) -- bonds that pooled thousands of mortgages and passed homeowners' payments through to investors -- in 1977. Not a moment too soon: Skyrocketing interest rates were turning the business of savings and loans -- funding long-term mortgages with short-term deposits -- making it a financial death trap for banks just as the housing demands of maturing baby boomers began to surge.

Ranieri's job was to sell those bonds -- at a time when only 15 states recognized MBS as legal investments. With a trader's nerve and a salesman's persuasiveness, he did much more, creating the market to trade MBS and winning Washington lobbying battles to remove legal and tax barriers.

A less likely financial engineer would be hard to imagine. Ranieri, a Brooklyn native, set out to be an Italian chef until asthma ruled out work in smoky kitchens. A part-time job in Salomon's mail room set him on the path to trading. A large, volatile man, Ranieri built the firm's mortgage desk in his own image: "fat guys," as author Michael Lewis described them in Liar's Poker, promoted from the back office, who indulged in feeding frenzies and practical jokes while selling strange new bonds to doubtful investors.

But Ranieri also recognized that "mortgages are math." He hired PhDs who developed the "collateralized mortgage obligation," which turns pools of 30-year mortgages into collections of 2-, 5-, and 10-year bonds that could appeal to a wide range of investors. The homeowner in Albuquerque could now tap funds from New York, Chicago, or Tokyo, a change that Ranieri figures cuts mortgage rates by two percentage points. Soon everything from credit-card balances to auto loans was being repackaged.

...more...

[Tansy_Gold]

14. "Then, in 1987, Gutfreund, Salomon's chairman, summarily fired him."

Maybe the second article explains this. I haven't read it yet. Or maybe there's more on the internet tubes that I could research.

But this particular sentence leapt out from the rest.




So why did Gutfreund fire Ranieri? Anyone know?



Tansy Gold, who may have to dig out her old :tinfoilhat: after all. . . .

[benld74]

15. Considering ALL his advice CAME from the Industry who wanted to,,

do these things, he was ONLY mouthing THEIR wants and desires in words and phrases THEY made up to get the things they wanted!