NYT: Michigan Debate Fact Check: Regulation and Housing Crisis (Fannie Mae, Freddie Mac lies)

[flpoljunkie]

The Republicans keep repeating these lies (NYC mayor Michael Bloomberg, shame on you, too) and the media--including the CNBC moderators, who surely know better--keep letting them get away with it. Thank you, New York Times, for setting the record straight. More fact checking at link below, as well. Emphasis mine.

November 9, 2011, 11:08 PM

Michigan Debate Fact Check
By THE NEW YORK TIMES

Regulation and Housing Crisis

There is a basic problem with the argument, made by several candidates, that the government forced mortgage lenders to make bad loans: most subprime loans were made by companies that were not subject to any kind of federal regulation.

Furthermore, there was no need for force. Financial companies jumped into the market. The major investment banks lined up to purchase subprime lenders, the major retail banks created subprime-lending divisions and a generation of upstart subprime lenders like Ameriquest and Countrywide were briefly celebrated as rising stars of American business.

No executive of a major mortgage company said at the time that the government was forcing him to make subprime loans. The executives said they did it because they thought they’d make money. And even now, after the crash, with all the temptation to point figures, it is awfully hard to find a mortgage executive who echoes the argument of the Republican candidates.

Studies of the financial crisis do assign a significant measure of responsibility to the government, but mostly for its failure to regulate these lenders.

Fannie Mae and Freddie Mac, the government-backed mortgage finance companies, did provide financing for large numbers of subprime loans, mostly by purchasing mortgage securities for their investment portfolios. But the historical record shows that they came late, diving into subprime lending because private companies were stealing their business and profits. As such, most experts have concluded that Fannie and Freddie helped expand the bubble but did not create it.

- Binyamin Appelbaum

http://thecaucus.blogs.nytimes.com/2011/11/09/michigan-debate-fact-check/

[Locrian]

1. thanks - good information - but

But the truly mind boggling amount of money was in the GAMBLING on these mortgages. The amount of money "lost" in the bad loans isn't even in the same magnitude range as the truly fucked up casino economy that traded off these mortgages.

At worst, the people who got the "bad loans" were ignorant. The people that MADE the bad loans were unethical. The people who traded on these and cooked all the ratings etc (and made all the MONEY) are CRIMINALS.

Oh, but that's right. When you own the legal system and gov, you also own what is legal and not. Above the law and all that....

[flpoljunkie]

2. In 2000, Bill Clinton signed Phil Gramm's bill that made this 'gambling' legal.

Great article from Mother Jones on this called, 'Foreclosure Phil.'

But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history.

It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."

But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.

In essence, Wall Street's biggest players (which, thanks to Gramm's earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund) ran a secret casino. "Tens of trillions of dollars of transactions were done in the dark," says University of San Diego law professor Frank Partnoy, an expert on financial markets and derivatives. "No one had a picture of where the risks were flowing." Betting on the risk of any given transaction became more important—and more lucrative—than the transactions themselves, Partnoy notes: "So there was more betting on the riskiest subprime mortgages than there were actual mortgages." Banks and hedge funds, notes Michael Greenberger, who directed the CFTC's division of trading and markets in the late 1990s, "were betting the subprimes would pay off and they would not need the capital to support their bets."

http://motherjones.com/politics/2008/05/foreclosure-phil

[roseBudd]

3. All DUers that are on Facebook share this on your wall to support OWS