Monday, October 24, 2011

Mortgage Meltdown Redux

On the Mortgage Metldown, there are two schools of thought:  One, that Wall Street took huge risks and should shoulder the blame, and the other the Federal Government took the risks and stuck Wall Street to fix the problems.  Unfortunately, we have a partial and biased federal government, a partial and biased main-stream media, so who can you turn to for truth?  How about Edward Pinto, former chief credit officer of Fannie Mae:
Edward Pinto, Former Chief Credit Officer of Fannie Mae

He says the government owned 71% of the sub-prime mortgages outstanding in 2008.
But based on the number of toxic loans in the system in 2008, the government was responsible for not just a simple majority, but more than two-thirds. It's quantifiable — 71% to be exact (see chart). And the remaining 29% of private-label junk was mostly attributable to Countrywide Financial, which was under the heel of HUD and its "fair-lending" edicts.
Most of the sub-prime mortgages were owned by Fannie Mae, Freddie Mac, HUD and the VA. That's pretty definitive. So, why is this data so hard to come by, and why are the Occupy Your Street hippies still clueless?  Blame the Government and the Main Stream Media.  IBD continues to light our path  on this topic (emphasis mine):
To be fair, the blame-Wall Street narrative has cemented in the public consciousness, and is hard to crack. That's because in the wake of the crisis, the Obama White House and Pelosi-Reid Congress engineered a cover-up of Washington's role in the mess through the Democrat-led Financial Crisis Inquiry Commission. The national media now defer to it as the final authority on what caused the crisis and ensuing recession.
While not blameless, Wall Street is an easy scapegoat. And investment houses that made billions slicing and dicing mortgages into CDOs, derivatives, credit default swaps and other exotic paper are easy to demonize. But the problem wasn't these financial instruments. Or even the obscene profits they generated.

Mortgage-backed securities were nothing new, and we've always had speculation in the market.The problem was the underlying assets: low-quality mortgages. We've never had so many junk home-loans poisoning the financial well before. And who poisoned the well? Washington and its affordable-housing policies.

It was Washington that declared prudent home-lending standards racist and gutted traditional underwriting rules in the name of diversity. It was government that created the risk on Main Street. Yes, Wall Street spread it, with the help of Treasury-backed Fannie and Freddie. But who's at greater fault for harming the village — the person who poisons the well or the one who distributes the water?
The bottom line: Wall Street is happy to take profit when they can, where they can, how they can.  Expect it, know it, own it, greed is human nature.  The shocker to OYS hippies is the U.S. Government is truly to blame for the mess, Wall Street only carried water for the well-meaning but ultimately fatally flawed policies of wealth re-distribution.  Some of us have known this since 1946. 

Now you know that, too


OBloodyHell said...

>>>> Now you know that, too.

Don't worry, if they're libtards, they'll forget it at Midnight.

suek said...

Another angle:

In this case, it was a Wall Street company that profited by fraud. They should have been prosecuted and sent to _jail_ - not just fined since it was a "white collar crime".

The government, however is _not_ prosecuting with jail as punishment. Probably, I'm guessing, because that would mean ferreting out just exactly who - of many in a moving target - was responsible for making decisions and carrying them out. Nevertheless, it seems to me that if _someone_ went to jail, other "someones" who were in responsible positions would make certain such actions didn't happen on their watch. And if such actions were taken prior to their assuming responsibility, they'd make the necessary corrections.

Anonymous said...

What about all those layers of high-priced bureacracy in Fannie and Freddie that pushed up interest rates, enrichening the already taxpayer-subsidized bankers and further impoverishing the people who used to be consumers when they had any money.

Bob in LA said...

Anon -- Your point about greed at Fannie Mae and Freddie Mac is well taken. Greed in government is a far greater risk and cost to our economy than capitalist greed -- they have opposite effects indeed.