Post by GogartyIn article
Post by Michael GordgePost by Bret CahillWell don't keep us settin' on the edges of our chairs.
What _is_ the price of freedom?
Simple, the price of removing the government's gun from the trader's
head.
What? You mean those people who wrecked the economy?
Let me share some relevant facts to counter your position. Not long
ago, New York state had a regulator named Carl McCall. He was the
state?s Comptroller - a fiscal regulator. Mc Call was also responsible
for investing the State?s retirement system funds. Wall Street is
located in New York City where Mr. McCall spend a lot of time. When
the stock market was doing well and the value of the retirement system
was rising fast, Mr. McCall liked to point out how well he invested
the people?s money. Then came the Dot Com crash. The value of the
retirement system crashed as well. Suddenly our government regulator
blamed Wall Street (unfettered capitalism) for the losses.
The Federal Reserve System is a government creation to regulate the
supply of money. It lowered interest rates to encourage business and
employment. As expected, banks lent and people borrowed the money.
Those who borrowed when rates were regulated low did well and everyone
was happy. When interest rates were regulated back up to forestall
inflation many borrowers were no longer able to make loan payments.
Thus the crisis. It seems unfettered regulation has caused this fiscal
turmoil.
Here are a few more examples of unfettered regulation. Government
created loan institutions (Fannie Mae and Freddie Mac) have gone
bankrupt. Instead of eliminating poverty, government anti-poverty
programs created millions more poor people on welfare. Government
Medicaid (for the poor) causes fiscal distress for local governments
which must share the costs. Government Medicare (for the aged and
disabled) is going broke faster than the government Social Security
program.
Should you not reassess your assumptions about the value of
regulation?
back
Blame Uncle Sam for our future
First published: Thursday, March 19, 2009
Your March 1 editorial "So long, Reaganomics" contends President
Obama's agenda fixes the conservative policies that got us to the
verge of depression.
Mortgage securitization was invented in 1970 by Ginnie Mae, a
government-sponsored enterprise. Congress mandated that Fannie Mae and
Freddie Mac (also government-sponsored enterprises) increase their
purchases of mortgages for low- and medium-income borrowers. During
the early Bush administration, Republicans in Congress warned about
this and suggested reforms which Democrats resisted. Government
encouraged sub-prime lending.
The Federal Reserve is a government creation to regulate the supply of
money. It lowered interest rates to encourage business and employment.
Those who borrowed when rates were regulated low did well and everyone
was happy. When interest rates were regulated back up to forestall
inflation, many borrowers were no longer able to make loan payments.
Thus the crisis. It seems unfettered regulation has caused this fiscal
turmoil.
The national debt, now $11 trillion, is expected to grow $1 trillion
yearly. All of this is financed by debt. There are not enough rich
people to pay this back. Government will have to resort to inflation.
That is a tax on everyone. Expect more poverty and a lower living
standard for the vast majority, thanks to government.
Werner Hetzner
Jaws close in on Bernanke
By Julian Delasantellis
July 16, 2008
http://www.atimes.com/atimes/Global_Economy/JG16Dj05.html
Quote: [The core of Freddie and Fannie's operations was to buy up
mortgage-backed securities in the open market then either hold them
to
maturity or sell them back to the market as mortgage-backed
securities
with the US government's implied backing. Both
dispositions
transferred the risk of mortgage default away from the
banks to Fannie
and Freddie.
Role of government and regulators
Economist Robert Kuttner has criticized the repeal of the Glass-
Steagall Act as contributing to the subprime meltdown. [58] A taxpayer-
funded government bailout related to mortgages during the Savings and
Loan crisis may have created a moral hazard and acted as encouragement
to lenders to make similar higher risk loans.[59]Additionally, there
is debate among economists regarding the effect of the Community
Reinvestment Act, with detractors claiming it encourages lending to
uncreditworthy consumers[60] [61] and defenders claiming a thirty year
history of lending without increased risk.
...
A contributing factor to the rise in home prices was the lowering of
interest rates earlier in the decade by the Federal Reserve, to
diminish the blow of the collapse of the dot-com bubble and combat the
risk of deflation.[69]. From 2000 to 2003, the Federal Reserve lowered
the federal funds rate target from 6.5% to 1.0%.[72]
Fannie Mae and Freddie Mac
Further information: 2008 GSE support plan
The Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac), two large government-
sponsored enterprises, are the two largest single mortgage backing
entity in the United States. Between the two corporations, they back
nearly half of all mortgages, around $12 trillion as of 2008.
http://en.wikipedia.org/wiki/Subprime_meltdown#Role_of_government_and_regulators
Fannie and Freddie are private companies where the profits go to
shareholders and losses go to taxpayers. There are a lot of people
(including your humble analyst) who have complained about the current
set-up. Basically, they were allowed to leverage their capital beyond
what even your most leveraged hedge fund would think prudent. How
could the value of homes go down? Leverage up and show huge profits,
pay monster salaries and bonuses to management who did nothing but
increase risk, and spend $170 million on lobbyists to make sure that
no one changes the rules.
http://reason.com/blog/show/130670.html
'In analyzing the mortgage crisis, economist Walter E. Williams has
written: “Starting with the Community Reinvestment Act of 1977, that
was
given more teeth during the Clinton administration, Congress
started
intimidating banks and other financial institutions into
making loans,
so-called sub-prime loans, to high-risk homebuyers and
businesses.
“The carrot offered was that these high-risk loans would be purchased
by
the government-sponsored enterprises Fannie Mae and Freddie Mac.
Anyone
with an ounce of brains would have known that this was a
prescription
for disaster but there was a congressional chorus of
denial,” he added.
“The financial collapse of Fannie Mae and Freddie Mac is not a
failure
of the free market because lending institutions in a free
market would
not have taken on the high-risk loans,” said Williams.
“They were forced
to by the heavy hand of government.” '
"In 1992, Congress mandated that Fannie and Freddie increase their
purchases
of mortgages for low-income and medium-income borrowers.
Operating under
that requirement, Fannie Mae, in particular, has been
aggressive and
creative in stimulating minority gains."
"The two companies are now required to devote 42% of their portfolios
to
loans for low- and moderate-income borrowers"
http://articles.latimes.com/1999/may/31/news/mn-42807
and
http://youtu.be/cMnSp4qEXNM
http://youtu.be/usvG-s_Ssb0
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575A...
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575A...
http://americanfuturefund.com/2008/09/25/barney-frank-blocks-reform-a...
• 1) Securitization for residential mortgages was invented in 1970 by
Ginnie Mae. It was expanded by government sponsored enterprises (e.g.,
Fannie Mae and Freddie Mac) and private institutions through the 1980s
and '90s to include a wide range of financial assets. 2) Congress has
consistently eliminated regulatory obstacles to securitization with
the Secondary Mortgage Market Enhancement Act (SMMEA), Real Estate
Mortgage Investment Conduits (REMICs), Financial Asset Securitization
Investment Trusts (FASITs), and Riegle Community Development and
Regulatory Improvement Act.
3) The Riegle Act also instructed federal
regulators to reduce risk-based capital requirements for bank holdings
of small business loan securities.
http://www.nado.org/loansales/securitization1.html
regulation derivatives
http://www.thenation.com/blogs/edcut/370925
Find out moe about the CRA
http://www.cato.org/pubs/regulation/regv17n4/vmck4-94.pdf