U.S. Taxpayers Risk $9.7 Trillion on Bailouts as Senate Votes

How naive you must be to think Govt had no role in this mess.

Community re-investment act provided the Govt the strong arm tactics to in a way force lenders to giving out bad mortgages.

Fannie and Freddie are supposed to have Govt oversight and there was none.

Govt has to take part of the responsibility in creating this mess.

Stop being naive.

The high cost of housing is one of the great social bombs of this country. I would rank it second to the inadequacy of our health delivery system as a problem that afflicts many, many Americans. We have gotten recent reports about the difficulty here.

Fannie Mae and Freddie Mac have played a very useful role in helping make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing, and that is what I am concerned about here. I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals. I worry frankly that there is a tension here.

As these new mortgages from government encouraged easing were underwritten, they were bundled into mortgage pool investments just like all mortgages are done. this bundling provides liquidity to the banks to provide additional mortgages.

Naturally, these lowered standard loans began to default within these mortgage bundles in ever increasing numbers.

'just like all mortgages are done?' You should think much more carefully about that line. Because this sure didn't used to be the case. What you are describing - the collateralization of debt - is not only a new thing (since 1999) it is the primary cause of our current crisis, and the reason banks and investment houses have crashed along with the housing market.

Naturally? You make these blanket statements, but do you have any proof to back them up?

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'just like all mortgages are done?' You should think much more carefully about that line. Because this sure didn't used to be the case. What you are describing - the collateralization of debt - is not only a new thing (since 1999) it is the primary cause of our current crisis, and the reason banks and investment houses have crashed along with the housing market.

You're right that the bundling of loans is a relatively new occurence...but why was it done to begin with?

The answer is because banks were hestitant to loan large dollar amounts to people they saw as risky. Refusing these loans was politically twisted by the Democrats into "Restricting access to higher education" and "Not providing more affordable housing"

So congress established Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae etal to provide a clearing house for these loans. These clearing houses would encourage more loans to lower income people by being a buyer to take these loans off the books of the banks.

Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae etal provided the liquidity mechanism for these loans to be made.

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Naturally? You make these blanket statements, but do you have any proof to back them up?

You don't think that the default rate would "naturally" climb by making more loans to higher risk parties? Why would they be referred to as "high risk" then?

Fannie and Freddie existed long before the 1999 changes to the Glass-Steagal act, allowing the collateralization of mortgage debts as securities.

You are displaying your ignorance of this subject in your attempts to pin the situation on the Democrats.

B/c many of the 'high risk' parties were quite rich and buying second mortgages.

You're right that the bundling of loans is a relatively new occurence...but why was it done to begin with?

The answer is because banks were hestitant to loan large dollar amounts to people they saw as risky. Refusing these loans was politically twisted by the Democrats into "Restricting access to higher education" and "Not providing more affordable housing"

So congress established Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae etal to provide a clearing house for these loans. These clearing houses would encourage more loans to lower income people by being a buyer to take these loans off the books of the banks.

Perhaps you should check the foreclosure rate in the richest areas of CA before spouting off about Detroit.

This is 100% false. Fannie and Freddie were not created in response to the problem of providing housing to the disadvantaged. And the 'bundling' that was allowed had nothing at all to do with access to home mortgages for the poor. Instead, it was all about 'innovative investment vehicles' and ways to make money on paper using extreme leveraging of money.

Cycloptichorn

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Perhaps you should check the foreclosure rate in the richest areas of CA before spouting off about Detroit.

I didn't realize that the dems were such aggressive advocates for the "rich".

If, by your statement, the rich in California have higher foreclosure rates than the poor in Detroit, then the democrats advocacy for a foreclosure bailout would become a "bailout for the rich" and that would put them more like Republicans than I think liberals would be comfortable with!

Cycloptichorn wrote:

This is 100% false. Fannie and Freddie were not created in response to the problem of providing housing to the disadvantaged. And the 'bundling' that was allowed had nothing at all to do with access to home mortgages for the poor. Instead, it was all about 'innovative investment vehicles' and ways to make money on paper using extreme leveraging of money.

Cycloptichorn

Oh really????

What then do you suppose was the reason for their creation??

Perhaps not, but the very large scale bundling of securities introduced into Fannie Mae by its former president (and ex Clinton political hack & appointee) Franklin Raines - with the active encouragement of Barney Frank & Maxine Waters was indeed one of the largest contributors to the crisis we have experienced. It is certainly true that Wall Street traders actively did their part in expanding this market; and that the commercial banks, motivated in part by misguided laws that directed loan activity to favored minorities, also joined in. However you can't simply write all this off to the excesses of capitalism. Ill-conceived, politically motivated government policy also played a major part in it.

Yes, some poor decisions certainly set the stage for the crisis. But I can't see a clear way to avoid blaming those who were directly tasked with managing their client's investments for failing to do so in a responsible fashion.

Cycloptichorn

Cycloptichorn wrote:

Yes, some poor decisions certainly set the stage for the crisis. But I can't see a clear way to avoid blaming those who were directly tasked with managing their client's investments for failing to do so in a responsible fashion.

Cycloptichorn

Well I think they all probably thought that they were doing a good job representing clients & shareholders - believing, as they did that the party would continue. That is the nature of bubbles - their eventual collapse is evident only in retrospect. The ethics & morality of the house flipper or the new homeowner who walked away from the mortgages they duly promised to repay is no different from that of the bankers who approved their loans. Both were eagerly encouraged by Fannie Mae and the Congress - both Republican and Democrats (but none more aggressively than the Democrats).

I'm all for letting the banks fail and allowing their shareholders to lose everything. The problem is that doing so would collapse the money supply and freeze our economy, injuring others in the process.

I firmly believe that a solution analogous to the one we applied with the Savings & Loan collapse of two decades ago ( allowing the worst S & Ls to fail while relieving the others through the Government operated Resolution Trust Corporation that held and - ultimately profitably - disposed of the 'toxic' loans) would be far better than the so-called "stimulus" plan we have today. Unfortunately the Democrats found the temptation of enacting their social program under the deceptive guise of a "stimulus" package too tempting to resist. We will pay for it with slow growth and eventual high inflation for the next twenty or so years.