Re: In Bush, Loyalists See A Good & Steadfast Man Who Has Gotten A Bad Rap

Vince wrote:
> John Briggs wrote:
>> Vince wrote:
>>> John Briggs wrote:
>>>> Vince wrote:
>>>>> John Briggs wrote:
>>>>>> Vince wrote:
>>>>>>> Paul J Gans wrote:
>>>>>>>
>>>>>>>>> Look,  the reason for this mess is the relaxation of US
>>>>>>>>> banking regulations over many years and the effect this has
>>>>>>>>> had on the world banking system.
>>>>>>>>
>>>>>>>> He's right about "banking" taken literally.  The problem is
>>>>>>>> that in the US mortgages can be issued by entities that are
>>>>>>>> not banks and are not subject to the same kind of regulation.
>>>>>>>>
>>>>>>>> While we often use the term "bank" to cover both, technically
>>>>>>>> it isn't correct.
>>>>>>>
>>>>>>> The "issuing" of mortgages as such was not the problem.
>>>>>>
>>>>>> Well, it was - in the sense that in their greed for commission,
>>>>>> the agents responsible for arranging those mortgages misstated
>>>>>> the income and ability to pay of those applying for mortgages
>>>>>> (those sub-prime applicants would still have got their
>>>>>> mortgages, albeit on very different terms, if their cir***stnces
>>>>>> had been correctly stated.)
>>>>> See below
>>>>>
>>>>>>>  It was the securiitization of repurchased re sliced mortgages
>>>>>>> though fannie may and Freddie Mac without the slightest quality
>>>>>>> control
>>>>>>
>>>>>> That was a consequence of the above. The securitisation and
>>>>>> re-slicing of sub-prime mortgages was a perfectly sound idea, but
>>>>>> was heavily dependent on the original mortgages being correctly
>>>>>> characterised. (So that real risk could be more accurately
>>>>>> *****sed.)
>>>>>
>>>>> Which was the precise skill FNMA was being paid for.  They bought
>>>>> crap knew it was crap and lied big time for the fees from
>>>>> securitization. paid themselves fat salaries and transferred the
>>>>> risk to the taxpayer They were the root cause since so one would
>>>>> write a mortgage if fannie and Freddie and Ginnie would not buy it
>>>>
>>>> The blame lies with those writing the mortgages. Not for writing
>>>> the mortgages, but for not accurately characterising them.
>>>
>>> Plausible deniability at work
>>>
>>> they wrote crap because FNMA wanted crap
>>
>> No, they wanted quantity - but *not* crap that was misdescribed. They
>> failed to pass this message on clearly enough.
>>
>
> nonsense
>
> Dimini****ng marginal quality is an inevitable result of demanding more
> quantity
>
> "So Mr. Mudd made a fateful choice. Disregarding warnings from his
> managers that lenders were making too many loans that would never be
> repaid, he steered Fannie into more treacherous corners of the
> mortgage market, according to executives. For a time, that decision
> proved profitable. In the end, it nearly destroyed the company and
> threatened to drag down the housing market and the economy.  Dozens
> of interviews, most from people who requested anonymity to avoid
> legal repercussions, offer an inside account of the critical juncture
> when Fannie Mae’s new chief executive, under pressure from Wall
> Street firms, Congress and company shareholders, took additional
> risks that pushed his company, and, in turn, a large part of the
> nation’s financial health, to the brink. Between 2005 and 2008,
> Fannie purchased or guaranteed at least $270 billion in loans to
> risky borrowers — more than three times as much as in all its earlier
> years combined, according to company filings and industry data.  “We
> didn’t really know what we were buying,” said Marc Gott, a former
> director in Fannie’s loan servicing department. .....
>
>
> 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.
>
> Whenever competitors asked Congress to rein in the company, lawmakers
> were besieged with letters and phone calls from angry constituents,
> some orchestrated by Fannie itself. One automated phone call warned
> voters: “Your congressman is trying to make mortgages more expensive.
> Ask him why he opposes the American dream of home owner****p.”
>
>
http://www.nytimes.com/2008/10/05/business/05fannie.html?pagewanted=print
>
>
> "The depressed housing market and high rate of foreclosures make it
> tough for anyone investing in home loans, but Fannie and Freddie took
> steps in 2006 and 2007 that came back to bite them. The companies
> lowered their standards for loans they would buy, and they backed
> riskier mortgages, including loans that didn’t require borrowers to
> provide proof of their stated income. Such loans accounted for half
> the companies’ credit losses in the second quarter this year."
>
> http://articles.latimes.com/2008/sep/08/business/fi-qanda8
>
>
> Everyone , everyone knew what was going on

But the problem was *not* that the loans were risky, it was that they were

riskier than described. Consequently, an *unknown* quantity of risk was 
bound up in the securitised instruments. That was why the credit market 
seized up: because no-one knew how risky those instruments were, and 
consequently how much actual risk the holders were exposed to, and thus
who 
was or was not really solvent, and creditworthy. Banks therefore stopped 
lending to each other. (Why banks should be lending to each other is a 
separate question...)
-- 
John Briggs