Totally Corrupt America - Paul Craig Roberts

[Michael Tee]

http://www.counterpunch.org/2011/10/24/totally-corrupt-america/

The article "Totally Corrupt America" by a former high-ranking Reagan Administration Treasury official, Paul Craig Roberts, is essentially a review of a new book (Reckless Endangerment, by Gretchen Morgenson and Joshua Rosner) exposing the corruption and fraud that led to the financial collapse of 2008, dealing specifically with the fraudulent issue of mortgage-backed securities (the securitization of bundled sub-prime mortgage loans) by a desperate financial institution on the verge of collapse (Long-Term Capital Holdings) and the amazingly lucrative marketing of them by about 15 major Wall Street financial institutions, acting in concert with corrupt bond-rating agencies (primarily Standard & Poor) who assigned a triple-A rating to what were effectively shit bonds. 

The essential criminality at the heart of American capitalism is so pervasive that Roberts, in his article, didn't even bother to mention the criminality and fraud at the point-of-origin of the shit bonds, where the primary lenders had figured out how to make a profit (by bundled re-sales) of the piles of worthless debt they were accumulating and were paying up-front commissions to any mortgage broker able to bring a warm body into their office to sign a mortgage loan agreement that they had obviously no hope in hell of every repaying.

What was particularly egregious about the whole racket was that the Wall Street institutions were selling what they knew to be shit to their own investor clients while betting against them through the novel financial instruments known as  credit default swaps ("CDS.")   CDS were invented by Wall Street and the insurance industry to create an insurance policy that avoided all the rules and regulations covering the issuance of insurance policies at the time - - effectively, a CDS was a bet against  a mortgage backed security, which Wall Street knew for sure, despite its "triple-A" rating, was bound to fail because the mortgages making it up would never be repaid by the poor dumb schmucks who had signed them.  The CDS, which were made available by insurance giants like AIG International for a ridiculously low price, could then be traded themselves in a secondary "over the counter" or "OTC" market.

The above part of the story was already fairly well known from other sources before the publication of Reckless Endangerment.  It certainly renders laughable the conservative claim that the whole crisis was caused by the easing of lending restrictions on home mortgages (portrayed by conservatives as more "interference" in private business, rather than less) and ignoring completely the criminality and fraud of the point-of-origin lenders making loans they knew would never be repaid, the mortgage brokers who brought the deadbeats to the point-of-origin lenders, the Wall Street hucksters who bundled and sold the shit as triple-A to their own investor clients, the rating agencies who rated them and of the insurance industry which issued what were effectively policies of insurance against their default, known as CDS.

Where Reckless Endangerment breaks new ground is in the story of how Wall Street and its corrupted politicians and political appointees were able to sabotage whatever legislative or administrative attempts were made to stop what were obvious frauds and abusive practices. 

The article illustrates how Standard & Poor (a rating agency) was able to block the State of Georgia from legislating an end to predatory home mortgage lending by killing an Act (the Georgia Fair Lending Act) which could have served as a model for other state legislation. 

It further indicates how Robert Rubin and Lawrence Summers, both Secretaries of the Treasury in the Clinton Administration, together with the SEC and the head of the Federal Reserve, were able to block the efforts of Brooksley Born, head of the CFTC (the Federal Commodities and Futures Trading Commission) to regulate the over the counter ("OTC") trade in mortgage-backed securities, which was then virtually unregulated.   Roberts doesn't devote much space to the Brooksley Born story, and I recommend further reference to her biography in Wikipedia, which gives a pretty good account of her struggles with Rubin, Summers and other powerful Wall Streeters embedded in the Clinton administration and her eventual defeat at their hands.  In fact, without the Wikipedia article, Roberts references to her in his article are basically meaningless.

[Plane]

....the criminality and fraud of the point-of-origin lenders making loans they knew would never be repaid, the mortgage brokers who brought the deadbeats to the point-of-origin lenders, the Wall Street hucksters who bundled and sold the shit as triple-A to their own investor clients......

    Made possible by Government garuntees?

     Without Fannie Mae and Freddie Mac , might there have been more natural limits on these bundles?

        The Government assumed all of the risk and freed bankers from responsibility. Loose credit policys seem like a favor to the poor, well at the time that is what it seemed like.

[sirs]

Here's a nutshell explanation of how the housing crisis was created.

In 1994, during Bill Clinton's presidency, the Community Reinvestment Act was changed. The government started making banks an offer they couldn't refuse: Start making loans to "bad risks" or -- and this was the unspoken threat -- your bank might have an "accident." Maybe the regulators will accuse you of bias. Maybe you'll need a merger and get turned down. Who knows what could happen?

The implicit threat from the government, which was really all about politicians being able to brag that they'd helped get the home ownership rate up, worked wonders.

Although subprime and other risky mortgages were relatively rare before the mid-1990s, their use increased dramatically during the subsequent decade.
- In 2001, newly originated subprime, Alt-A, and home equity lines (second mortgages or "seconds") totaled $330 billion and amounted to 15 percent of all new residential mortgages.
- Just three years later, in 2004, these mortgages accounted for almost $1.1 trillion in new loans and 37 percent of residential mortgages.
- Their volume peaked in 2006 when they reached $1.4 trillion and 48 percent of new residential mortgages. 
- Over a similar period, the volume of mortgage-backed securities (MBS) collateralized by subprime mortgages increased from $18.5 billion in 1995 to $507.9 billion in 2005.

All of this worked out fine as long as home prices kept going up, but when the bubble burst, the whole system was doomed because it was filled with so many people who shouldn’t have been given loans in the first place.

Meanwhile foreclosures ramped up and suddenly there was a housing glut created by the tremendous drop in demand. This is why housing prices are still in the dumps across most of the country and probably will continue to be for a good, long while.

This is where the banks and hedge funds blew it with derivatives, which ended up spreading the crisis and creating a credit crunch, not just across America, but across the world. Of course, ....if the government hadn't created the underlying bubble, there would have been no crisis to spread.

So, cast stones at Wall Street all you like, but there's no CEO in the country who has as much responsibility for creating the housing crisis as people like Bill Clinton, Barney Frank, Chris Dodd and, yes, even a few Republicans -- although to George W. Bush's everlasting credit, his administration did at least make a genuine attempt to work with Congress to fix the problem in 2002 that ultimately was blocked by the Democratic party and went nowhere.

[Michael Tee]

<<Made possible by Government garuntees?>>

If all the mortgages in all the sub-prime mortgage bonds were guaranteed by the government, the bonds wouldn't have been shit bonds and either (a) wouldn't have started to default, or (b) wouldn't have triggered any crisis if they did, depending on the terms of the guarantees and at what stage of the default the US government's liabilities would have been triggered.   The bond would have been nothing less than a solid-gold security requiring at most a little bridge financing, easily available if an ultimate US Government rescue was guaranteed.

What is your source for asserting that the sub-prime mortgages were Government-guaranteed and what percentage if any of them enjoyed the advantage of such guarantees?

     <<Without Fannie Mae and Freddie Mac , might there have been more natural limits on these bundles?>>

Without government regulation of any kind on the primary lenders' activities there would have been no limits at all to the bundles, since once the loans were made from the lenders' initial capital, they would have had no way to grow without making fresh loans, which required more capital.  The easiest way of raising more capital was to sell the existing corporate assets (their mortgage portfolio) and make new loans.  Since the business model of the "specialty finance" corporations (the companies specializing in sub-prime home mortgage loans) was to transfer risk by selling rather than holding the mortgages, the pool of qualified borrowers was rapidly being exhausted, leading to the need to sign up anyone they could find, which in turn led to the creation of superficially attractive mortgages (variable-rate or "balloon" types) designed to appeal to the kind of worthless schmucks who were becoming the only borrowers in the pool.  The weakness or absence of regulation, either tightening the qualifications of borrowers, or requiring the issuing lenders to hold the securities for a fixed period of time (thus preventing them from immediately transferring the risk to third parties "upstream,) or spreading some of the risk to brokers by making part of all of their commissions contingent upon mortgage performance or posting bonds against their primary borrowers' defaults, created an environment where operators could take out an immediate profit on a shit loan without assuming any of the risk.  In such a regulation-free environment, the temptation for a quick buck is irresistible to all the parties involved, even the primary borrower, who can hope against hope that some future reversal of fortune will enable him to pay the mortgage and keep the home.

The conservative position (deregulation) is motivated by two different factors, depending on who is advancing the conservative view.  For the financial industry in all its branches, greed is the only motivating factor.  Less regulation  = more chances to make a buck, legitimately or not.  For the conservatives who are not positioned to personally profit from deregulation (and indeed, who are most likely to be victimized by it) the motivating force is ignorance or stupidity - - they are basically living in their heads, in simpler times when loans were made by commercial banks to home-buyers and held to maturity, or bundled and re-sold "up-stream" to larger mortgage lending institutions.  In reality, there is nothing so simple any more - - there are mortgage brokers, paid to find borrowers, there are non-bank  lending institutions, there are investment bankers bundling and selling home mortgages, there are rating agencies and there are (incredibly enough) insurance companies willing to facilitate betting for or against the mortgages and the risk of default on them.  This huge cast of characters and the complex ways in which they interact can't just be left to what you call "natural limits" because "nature" (i.e., unfettered capitalism) has no "natural limits," the capitalist imperative being to make a profit at all costs, sooner rather than later, and risk-free rather than risky.   This basically leads to the line of least resistance, the fastest and easiest profit and the simultaneous transfer of risk.

        <<The Government assumed all of the risk and freed bankers from responsibility.>>

The government DID NOT "assume all of the risk"  (obviously or there would have been no crisis) but they sure as hell by deregulation freed the bankers and everyone else involved in this morass from responsibility.  THAT is the whole fucking point of deregulation - - to let the market "do its thing" freely.  Which is EXACTLY what in fact happened.

<< Loose credit policys seem like a favor to the poor, well at the time that is what it seemed like.>>

Loose credit policies - - just one more aspect of deregulation - - may have appeared to help the poor but in no way explain the phenomenon of everything else that followed, even the granting of sub-prime loans.  The fact that the banks were free to make the sub-prime loans did not mean that they HAD to make them.  The rationale for making the sub-prime loans lay in the ability to transfer the risk once created.  ALL of the events from the granting of the first sub-prime loan stemmed purely from capitalistic greed and the profit motive.  If I raise the speed limit to 200 mph, that does not mean that you are not fully responsible for the consequences if you choose to drive around a mountainside curve at 195 mph on a rainy night.  There's a big difference between authorizing someone to drive crazy and forcing someone to drive crazy.  And once the loan was made, all the other activity surrounding it didn't even have any arguable connection to loose credit - - it was ALL greed to make a buck at just about every level of the whole financial system.

[Michael Tee]

<<In 1994, during Bill Clinton's presidency, the Community Reinvestment Act was changed.>>

Totally irrelevant to how the crisis came about.

<< The government started making banks an offer they couldn't refuse: Start making loans to "bad risks" or -- and this was the unspoken threat -- your bank might have an "accident." Maybe the regulators will accuse you of bias. Maybe you'll need a merger and get turned down. Who knows what could happen?>>

That's hilarious.  "The government" did that, eh?  I suppose there's a record somewhere, of which particular government official said exactly what to which particular banker, right?  Oh, no - - it was an "unspoken threat."  So not only is there no written record of the "unspoken threat," we can't even find a bank official willing to testify that the "threat" was whispered to him in a crowded bar-room by someone he didn't really see.  And of course, "the banks" who had received this "unspoken threat" probably shit their pants when they "heard" the "unspoken threat" - - after all, what are they but poor defenceless banking institutions, without influence or friends in Washington (well except for Lawrence Summers, who was the Clinton Administration's Secretary of the Treasury, and Robert Rubin, who was also the Clinton Administration's Secretary of the Treasury) and of course they were too poor to hire lawyers to fight against any turned-down mergers or unfair accusations of bias.  Sure, where could they find a decent lawyer?  I bet even the Public Defender's Office would refuse to aid them, just because they're banks and everyone hates them.

Minus the sarcasm, this story is THE BIGGEST CROCK OF SHIT that you've come up with to date.  Not only is it not true, not only is there absolutely no evidence whatsoever in its favour, but the story itself is so ridiculous on its face that it's absurd.

<<The implicit threat from the government, which was really all about politicians being able to brag that they'd helped get the home ownership rate up, worked wonders.>>

Oh, those poor bankers!  Forced by "implicit threat" from the government to just throw away their money on people who could never pay it back!  No lawyers to defend them from the threat or its implementation.  No influence at all in the Clinton Administration.  How could they fight this?  The government told them to take their money and pour it down a rat-hole, and so, like good corporate citizens, they just took their money and poured it down a rat-hole.

<<Although subprime and other risky mortgages were relatively rare before the mid-1990s, their use increased dramatically during the subsequent decade.
<<- In 2001, newly originated subprime, Alt-A, and home equity lines (second mortgages or "seconds") totaled $330 billion and amounted to 15 percent of all new residential mortgages.
<<- Just three years later, in 2004, these mortgages accounted for almost $1.1 trillion in new loans and 37 percent of residential mortgages.
<<- Their volume peaked in 2006 when they reached $1.4 trillion and 48 percent of new residential mortgages. 
<<- Over a similar period, the volume of mortgage-backed securities (MBS) collateralized by subprime mortgages increased from $18.5 billion in 1995 to $507.9 billion in 2005.>>

What's missing from the analysis of the rapid increases?  The PROFITS TAKEN.  Sure the volume was increasing because everyone in the business was making money from it - - the primary lenders, their brokers, the corrupt rating agencies, the investment banks bundling and reselling the mortgages, the added incentive being the complete avoidance of all risk by the investment banks, buying "insurance" against defaults in the form of CDS issued by insurance companies in avoidance of existing regulations and only possible because of lax federal oversight and regulation.  This was a whole house of cards, created purely for the profit of the players, which was astronomical. 

The myth that all that growth in volume of sub-prime loans was made to give politicians bragging rights is ludicrous.  The banks and financial institutions don't exist to serve the politicians - - they OWN the fucking politicians.  All of the activity that sirs relates was FOR-PROFIT activity and the profits went directly into the pockets of the lenders, the brokers, the investment banks, the rating agencies and the insurance companies.  This was a GREED-FEST of unimaginable proportions, made possible only by deregulation of all the players involved.

<<All of this worked out fine as long as home prices kept going up, but when the bubble burst, the whole system was doomed because it was filled with so many people who shouldn’t have been given loans in the first place. >>

Gee, what a surprise.  Who could have guessed?

<<Meanwhile foreclosures ramped up and suddenly there was a housing glut created by the tremendous drop in demand. This is why housing prices are still in the dumps across most of the country and probably will continue to be for a good, long while.>>

Oh, no!  Is that what happens when a Ponzi scheme collapses?  Why that's TERRIBLE.   b-b-b-b-But where did all that money go?

<<This is where the banks and hedge funds blew it with derivatives, which ended up spreading the crisis and creating a credit crunch, not just across America, but across the world. Of course, ....if the government hadn't created the underlying bubble, there would have been no crisis to spread.>>

Yes, very few people realize that after loosening the restrictions on borrower qualifications, "the government" then infiltrated the ranks of lending institution management and TRICKED them into loaning out all their money to borrowers who had no hope in hell of ever repaying them.  It just goes to show you how naive lenders can be manipulated by government into giving away all of their money.  Or "threatened" into it by "unspoken threats" which they were powerless to defend against.  Even when their own people were embedded as Treasury Secretaries in the Administration which was "threatening" them with "unspoken threats>"

Really, sirs, you've outdone yourself.  This one takes the prize, it's the biggest crock of shit you've ever come up with in your entire posting career.  Not only is it totally false, but it is even patently absurd on its face.  A true masterpiece of conservative myth-making at its finest.  My congratulations, sirs.  And no, you don't have to reply to this, in your usual meticulously perfect logical argument, I'll do it for you:  Superman, Kryptonite, red is blue, yadda yadda, must fit template, tea leaves . . .   There.  Nothing left out.  No, no, you don't need to thank me, sirs, serving you is satisfaction enough for me.

[Plane]

This is the bit you need to look over again , what is the nature of Fannie Mae and Freddy Mac?

You should not assume that any and all choices or regulations produced byt he US government will always be a positive .

<<The Government assumed all of the risk and freed bankers from responsibility.>>

The government DID NOT "assume all of the risk"  (obviously or there would have been no crisis) but they sure as hell by deregulation freed the bankers and everyone else involved in this morass from responsibility.  THAT is the whole fucking point of deregulation - - to let the market "do its thing" freely.  Which is EXACTLY what in fact happened.

[Michael Tee]

<<This is the bit you need to look over again , what is the nature of Fannie Mae and Freddy Mac?>>

I don't know what their "nature" is, you can tell me. 

However the idea that they guaranteed all mortgages is obviously absurd.  If the mortgages in the sub-prime mortgage bonds were all fully guaranteed there couldn't have been any crisis.

[Plane]

<<This is the bit you need to look over again , what is the nature of Fannie Mae and Freddy Mac?>>

I don't know what their "nature" is, you can tell me. 

However the idea that they guaranteed all mortgages is obviously absurd.  If the mortgages in the sub-prime mortgage bonds were all fully guaranteed there couldn't have been any crisis.

 
   That Fannie and Freddie assumed too much of this risk is half the cause of the crash.  Without the government garuntees the crash could not have reached the magnitude that it did. Perhaps a smaller crash would have been recovered from a lot sooner.

    If you don't know what Fannie and Freddy were doing how did you know that there was a crash?

from the following article....

..........That same year he claimed, "securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending." And separate themselves they did, ceasing to perform any kind of due diligence as to the ability of borrowers to pay for the homes they were buying.

This also from the following article, I really liked this article.

.......the fact of the matter is that the very presence of Fannie and Freddie incentivized brokers to overstate the creditworthiness of borrowers and then pass on that risk to the federal government, all while being cheered for helping more people "realize the American Dream." While we can all agree (I hope) that mortgage markets only function when -- as Frank told Money, banks "do not lend money to people who can't pay it back" -- Frank's ideology in this case blinded him for decades to the realities of the marketplace and the operations at

http://www.fool.com/investing/dividends-income/2008/09/10/the-people-responsible-for-fannie-mae-and-freddie-.aspx

It was a wise man who noted that the only corporate structure more insidious than a government-sponsored monopoly is a government-sponsored and investor-owned monopoly. In the end, as Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) have now so painfully proved, trying to serve the master of public policy while generating returns for investors will lead to disaster.

Fannie and Freddie collapsed because they were part and parcel of the widespread gross financial misconduct that has taken place in the United States over the past decade. It's easy to miss this fact, but the reality is that too many people were making too much money pumping up the housing market. In 2005, the Office of Federal Housing Enterprise Oversight (OFHEO), the erstwhile regulator of the two, attempted to limit their use of off-balance sheet entities to groom earnings. In the end, it didn't, because, as one reform-minded politician admitted, Congress was afraid of undermining the housing boom.

Some are more culpable than others
As part of the conservatorship, the Department of the Treasury has demanded that Daniel Mudd and Richard Syron, the CEOs of Fannie and Freddie, respectively, step down. Certainly, at the time of a corporate collapse, those in charge have to bear some responsibility. But Mudd and Syron came into their roles when the great pillaging was well in process.

........................................................................
Franklin Raines
Fannie Mae was always a political beast, but it reached its elbow-swinging heights during the time when former Clinton administration budget director Franklin Raines sat in the CEO chair. Under Raines' leadership, Fannie overstated earnings by a stunning $10.6 billion, all the while paying Raines and his senior management team massive bonuses.

It was under Raines' management that Fannie morphed from being a company in a sleepy business -- issuing debt to buy mortgages from lenders -- into a far more risky and exciting one: buying up mortgages and holding them, thus capturing the spread between its borrowing costs (which were lower than anyone's other than the federal government's) and the interest rate received. It was a great business, except that it had nothing to do with Fannie's charter. According to a May 2006 report from OFHEO, Raines became obsessed with keeping earnings per share as high as possible and motivated management to achieve that goal by setting up a bonus system that rewarded increasing earnings per share (EPS).

The thing is: Any company can hit an EPS number if it doesn't worry about little things like accounting rules, debt levels, and risk factors. All told, Raines pulled in some $90 million between 1998 and 2003, the majority from bonuses. And when OFHEO began to ask uncomfortable questions, Raines actively lobbied Congress to cut its funding. In April, Raines agreed to disburse $24 million for his role in the accounting "errors."

Timothy Howard
Former Fannie Mae CFO Timothy Howard is another major player who is probably cowering in a corner somewhere. For all of the expletives and derogatory names thrown at former Enron CFO Andrew Fastow, he at least stayed around to take his punishment. Inmate No. 14343-179 pleaded guilty to fraud and is serving a six-year prison term. Howard, on the other hand, saw the writing on the wall -- largely because he was the author -- and got out of Dodge.

As Fannie's CFO from 1990 to 2005, Howard signed off on the financials that overstated the company's earnings by $10.6 billion from 1998 to 2004. His reward? A cool $14 million in salary and $16.8 million in bonuses during the period -- bonuses based on the earnings plan that Raines set up.

While Howard was not the only person at Fannie guilty of constructing fraudulent financial statements quarter after quarter, as CFO he is most responsible for the integrity of said statements. Whether he left early enough to avoid culpability remains to be seen. However, we've heard through the low-security-prison grapevine that Fastow is lonely these days and wouldn't mind talking shop with a fellow former CFO.

Barney Frank
The House Financial Services Committee chairman and Democratic congressman from Massachusetts has long been a proponent of both Fannie and Freddie, assuring the public that their mission to encourage home ownership outweighed the distortive risks they brought to the market, and that the federal government was not, in fact, on the hook for their liabilities. In fact, it seems clear now that Frank had no idea of just how poor a grasp Fannie and Freddie had on their lines of business. As recently as Aug. 25 he told Money magazine, "Fannie and Freddie are better off than the market thinks. ... Part of the problem is rumormongering by short-sellers."

What's more, though Frank will blame past political opponents for failing to further regulate the mortgage market by banning products such as subprime loans, the fact of the matter is that the very presence of Fannie and Freddie incentivized brokers to overstate the creditworthiness of borrowers and then pass on that risk to the federal government, all while being cheered for helping more people "realize the American Dream." While we can all agree (I hope) that mortgage markets only function when -- as Frank told Money, banks "do not lend money to people who can't pay it back" -- Frank's ideology in this case blinded him for decades to the realities of the marketplace and the operations at these companies, leading him to stonewall realistic reform efforts that might have helped us avoid the current calamity.

Angelo Mozilo
There's good reason for Angelo Mozilo to hide under a desk these days. Few, if any, extracted more personal profit from the credit bubble than the CEO and founder of Countrywide Financial. Mozilo's talking points always borrowed heavily from the propaganda of our government-sponsored enterprises (GSEs). Countrywide liked to pretend that it was performing some kind of public service -- "breaking down barriers" -- by making homes more "affordable" to the average (or subaverage) wage earner. Unfortunately, as speculation drove home prices to ridiculous levels across the U.S., "affordability" came to be the code word for gimmicky, high-interest subprime loans lavished on the riskiest of borrowers in order to get them into a mortgage that would soon be bundled and shipped off to the suckers on Wall Street.

Unfortunately for borrowers and investors in Countrywide's mortgage paper, the American Dream of home ownership quickly morphed into a nightmare. Default rates surged, followed by the inevitable foreclosures, and mortgage paper backed by Countrywide loans became as valuable as post-bubble, dot-com stock options. Countrywide was only spared the ignominy of bankruptcy when its longtime sugar daddy, Bank of America (NYSE: BAC  ) , stepped in to take it out.

As captain of this sinking ship, CEO and founder Mozilo was, for a time, very vocal in defending his company's legacy. But like so many others in America's great housing bubble, talk was one thing, and actions were another. As the housing bubble began peaking in 2003 and 2004, through the period when Countrywide's risky lending fell apart, Mozilo engaged in one of history's greatest stock dumps, selling more than $480 million worth of shares, according to the tally of insider filings on secform4.com. This graph tells the tale.

Alan Greenspan
If not the boldest of the group, then at least the most public, Greenspan, the man many are now blaming for the housing bubble (there were a brave few that piped up years ago), has refused to go quietly into his well-padded retirement. The man charged with providing the country with a financial voice of reason fell far short, so much so that it might be comical if it weren't so tragic.

Greenspan's denial of the possibility of a housing bubble has been widely derided in the past year, but a single statement could be excused as human error. However, a quick scan shows that this wasn't a single event. He also promoted the adoption and expansion of adjustable-rate mortgage (ARM) products in early 2004, when short-term rates were at or near historic lows. That same year he claimed, "securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending." And separate themselves they did, ceasing to perform any kind of due diligence as to the ability of borrowers to pay for the homes they were buying.

Now retired from his role as the nation's monetary conscience, Greenspan continues to espouse his, er, theories on the financial crisis through editorials in which he denies any culpability for the events of the past three years. He is also applying his experience and insight as an advisor for Paulson & Company, a hedge fund which cashed in on billions of dollars by calling the collapse of the subprime mortgage market that Greenspan helped create.

An ignominious list
To be sure, there were many more complicit in this mess, including consumers who bought more house than they could afford. And though we have to move forward now, let's hope no one forgets what's happened here.

Thanks for listening.
.

.      .

[Plane]

http://www.nytimes.com/2008/07/14/opinion/14krugman.html


Fannie, Freddie and You


 
 By PAUL KRUGMAN

Fannie Mae — the Federal National Mortgage Association — was created in the 1930s to facilitate homeownership by buying mortgages from banks, freeing up cash that could be used to make new loans. Fannie and Freddie Mac, which does pretty much the same thing, now finance most of the home loans being made in America.

The case against Fannie and Freddie begins with their peculiar status: although they’re private companies with stockholders and profits, they’re “government-sponsored enterprises” established by federal law, which means that they receive special privileges.

The most important of these privileges is implicit: it’s the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.

This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

Such one-way bets can encourage the taking of bad risks, because......


.....................................

......
Also, Fannie and Freddie, while tightly regulated in terms of their lending, haven’t been required to put up enough capital — that is, money raised by selling stock rather than borrowing. This means that even a small decline in the value of their assets can leave them underwater, owing more than they own.

Would you believe that after making these points Paul goes on to conclude that Fannie and Freddy are good ideas that ought to be rescued and reset?

He really argues against himself here and hardly realises that he lost.

[Michael Tee]

plane, The Motley Fool, whose article you quote, is a provider of financial services to the general public, and as such is part of the problem and not part of the solution.  Its analysis of the crash of 2008 is far from impartial, and can be expected to present the views of Wall Street and the financial services industry generally, i.e., that Fannie and Freddie bear most if not all of the blame.

Your Krugman quote was extremely misleading, for it begins immediately after Krugman's following sentence, which you deliberately excluded from the quote you posted here:

<<Furthermore, while Fannie and Freddie are problematic institutions, they aren’t responsible for the mess we’re in.>>

It's getting late now, and I'm very tired.  So I think I'll turn in before going over your quotes in detail, but they're definitely something I'd want to take a closer look at.

[Plane]

   Don't accuse me of being disingenuous, I mentioned in my own words that Krugman came to an opposing conclusion.

     I included that portion because it is an agreement from a known liberal on the basic facts.

      That the facts don't dissuade Krugman from his liberal POV in the slightest is just tipical of human beings.

       A lot of those bundled mortgagues were garunteed by the government and this was a portion of the problem , a large portion of the problem.

[sirs]

HUGE part of the problem

[Michael Tee]

<<Don't accuse me of being disingenuous, I mentioned in my own words that Krugman came to an opposing conclusion.>>

You're still being disingenuous.  What you mentioned in your own words was that Krugman <<[concluded] that Fannie and Freddy are good ideas that ought to be rescued and reset.>>

That is a far cry from what you excluded, in which Krugman had actually stated specifically that Fanny and Freddy were NOT RESPONSIBLE for the mess that you were in.

[sirs]

A hard core leftist agreeing with another hard core leftist that the Government programs of Fannie & Freddie were not a significantly responsible source for the housing meltdown and subsequent econimic collapse?  Say it ain't so   

[Michael Tee]

<<A hard core leftist agreeing with another hard core leftist that the Government programs of Fannie & Freddie were not a significantly responsible source for the housing meltdown and subsequent econimic collapse? >>

Gee, so Paul Krugman, Nobel Prize winner, Princeton and LSE Professor of Economics, winner of the Adam Smith Award of the National Association for Business Economics,   author of a standard college textbook on international economics, is a "hard core leftist." 

Who knew?  Thank you sirs for revealing this astonishing news, and I hope you'll be generous enough to reveal the source of your revelations to the rest of us ignorant peons.