Kat Reads the News and RESPONDS to some of her critics
Current mood: cantankerous
Category: News and Politics

I made some comments at some blogs here on MySpace, and also in my own blog space. The comments were about the Republicans blaming the Democrats for the current crash of the loan industry. The argument, put out by the Republicans, has been that the Carter and Clinton Administration, and then the Democratic Congress are at fault for the current crisis because these various entities FORCED through legislation the government agencies, i.e. Fannie Mae and Freddie Mac, to practice unsound and even dangerous lending practices.

My stance on this is that:

The New York Times

Pressured to Take More Risk, Fannie Reached Tipping Point

This isn't the entire article, I've excerpted it here. Click on this link to read the whole thing.

Dealing With Risk

When [Daniel H. Mudd] arrived at Fannie eight years ago, [the company] was beginning a dramatic expansion that, at its peak, had it buying 40 percent of all domestic mortgages.

Just two decades earlier, Fannie had been on the brink of bankruptcy. But chief executives like Franklin D. Raines and the chief financial officer J. Timothy Howard built it into a financial juggernaut by aiming at new markets.

Fannie never actually made loans. It was essentially a mortgage insurance company, buying mortgages, keeping some but reselling most to investors and, for a fee, promising to pay off a loan if the borrower defaulted. The only real danger was that the company might guarantee questionable mortgages and lose out when large numbers of borrowers walked away from their obligations.

So Fannie constructed a vast network of computer programs and mathematical formulas that analyzed its millions of daily transactions and ranked borrowers according to their risk.

Those computer programs seemingly turned Fannie into a divining rod, capable of separating pools of similar-seeming borrowers into safe and risky bets. The riskier the loan, the more Fannie charged to handle it. In theory, those high fees would offset any losses.

With that self-assurance, the company announced in 2000 that it would buy $2 trillion in loans from low-income, minority and risky borrowers by 2010. All this helped supercharge Fannie's stock price and rewarded top executives with tens of millions of dollars. Mr. Raines received about $90 million between 1998 and 2004, while Mr. Howard was paid about $30.8 million, according to regulators. Mr. Mudd collected more than $10 million in his first four years at Fannie.

KAT: Are ya with me so far? Despite what Mr. Mudd claims, everyone at Fannie Mae was making money. How upset was he really, after successfully turning a dying company around, and raking in the bucks for himself and his board?

Between 2001 and 2004, the overall subprime mortgage market — loans to the riskiest borrowers — grew from $160 billion to $540 billion, according to Inside Mortgage Finance, a trade publication. Communities were inundated with billboards and fliers from subprime companies offering to help almost anyone buy a home.

Within a few years of Mr. Mudd's arrival, Fannie was the most powerful mortgage company on earth.

Then it began to crumble.

KAT: Wait, what were those dates? Who was the controlling party during those years...hmmm, let me Google it and see.

Keep reading...

Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation's largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

KAT: This Countrywide connection explains SO MUCH about what's happened out here!

But at that meeting, Mr. Mozilo, a butcher's son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide's riskier loans.

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

KAT: At this point, I'm done reading. I see the way it's going and that way doesn't offer a good, nice, or fun place at the end. Sadly, not all Democratic representatives were guiltless, and here is why the entire party is now the fall guy... You see, everyone was pressuring Fannie Mae top exec, Mudd...including...well, you'll see...

On one occasion, a hedge fund manager telephoned a senior Fannie executive to complain that the company was not taking enough gambles in chasing profits.

"Are you stupid or blind?" the investor roared, according to someone who heard the call, but requested anonymity. "Your job is to make me money!"

Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie's affordable-housing goals.

KAT: Regulators decreased the regulations...hmmm....

Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.

"When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie's mission is of paramount importance," Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. "In fact, Fannie and Freddie can do more, a lot more."

My question is why didn't anyone ELSE see it at the time it was happening?

Congresses worst crime, as I can figure, seems to have been one of negligence and not doing their research on the historical nature of this situation -- in essence they trusted the money people to know about money, and they trusted the trend in deregulation to be in the best interest of the people being served. Yes, that's stupid, but it isn't criminal.

Governor Palin can accuse the Democrats of "playing the blame game" all she wants - and this is a favorite and familiar tactic of the Republicans when they don't like being made accountable for their actions - but the facts are the facts.

Because of the rampant, and I would suggest criminal, deregulation corporations such as Countrywide gained too much power and sucked everyone down into the toilet bowl with them when it all came undone.

I stand by my earlier comments both here and "abroad" - Not Jimmy Carter, not the Clinton Administration, and not every member only of the recently majoritied Democratic Congress is responsible for our present mess.

Now that we know HOW and WHY and WHO FROM it all happened, isn't it time to fucking clean it up and stop whining about how hard it's going to be?

On Meet The Press yesterday one of the pundits commented that "America has a huge task ahead of her, and it's going to require hard work and sacrifice." Well, Americans don't like either.

People don't want taxes, just for example, but hey! Taxes pay for our schools! Want our future generations growing up stupid and ignorant? Oh, wait....

*sigh*

Currently listening : Siren By Heather Nova Release date: 1998-06-02

6:45 PM - 4 Comments - 4 Kudos - Add Comment