Wednesday, November 2, 2011

Shriek at molehill; Not a peep at Mountain

The following was a response to the news of multi-million dollar bonuses to the executives of Fannie Mae and Freddie Mac. The outrage from those who pushed these institutions into being a major cause of the housing bubble and crash is laughable. Frank, Reid, Pelosi and others should have their pensions, special health packages, and salaries revoked for what they blame on Fannie and Freddie. Of course we don't hear much outrage that *they* are still being compensated in grand manner. Anyway, here's the response:

Sigh. There are so many people who should be IN JAIL for the unspeakable fraud that was the housing bubble. Start with Clinton's white house. They forced the regulatory changes that penalized lenders if they DIDN'T make bad loans (bad by any standard traditional measurement --- "good" if being a low income supposed ethnic minority on welfare was counted as a positive indicator of ability to repay.) The regulations also rewarded lenders who met "goals" (quotas) for making such ill-advised loans. Whine and complain all you want. It was Clinton and his cronies who wrote these rules, and was thus a large part of the reason the taxpayers who DID NOT make bad financial decisions are being bled dry to pay for the results. The other major part of the debacle was the use of the "supposedly private - but - really - everyone -knew - was - government underwritten - if -the doodoo - hit the fan" Fannie and Freddie. Led by a dumber Barney than Fife, the relevant congressional committee was happy to have these companies buy up a huge portion of the bad loans generated by Clinton's regulatory policies. See, first you have to create the problem, THEN you have to put the problem on the backs of those evil people out there who go to work, don't over spend, pay their bills, save as much as possible, and don't ask for the unearned - DISGUSTING! So full of themselves and their rational independent wise goodie-two-shoe ways! This'll surely show 'em. How dare they pretend that any particular way of living, like, living within your means, is BETTER (liberal intake gasp of horror) than any other way of living! Even... wait for it... more... MORAL!! (they fainted.)


Anyway, the final piece to this pie of pending penury is our head exploding FTC policies and shadow banking system which, among many more unreal and crazy-nuts-o things, allow things like 1) forcing sub prime lending 2) insure sub prime loans, 3) bundle and trade such insurances, loans, or bundles of each 4) link other traded financial instruments, commodities, etc. to these bundles, each bundle having varying percentages of 'good' or bad 'loans' 5) exponentially magnify the problem by allowing non-real commodity trading of instruments which are just numbers based on complex formulas of variables based on features of rafts of other financial instruments. Oh - then stir in the confusion of which percentage of which loans in which bundles involved in which non-real instrument values ..gasp...are to be or have been picked up by fannie / freddie and thus (previously) were thought to be insured by the govt (read: taxpayer)....
Now, throw all that (and more) in a pot and stir it through the upwards portion of the bubble (Clinton years) when life was GRAND! Everyone could afford a house, demand far outstripped supply, prices soared, didn't matter cause anyone could get a nice ARM loan, the entire economy surged to supply all the things that go with building more houses.... Ah the roaring 90s.... What Wikipedia refers to as the "largest peacetime economic expansion in history"... And by expansion they mean - artificial government fiat suppressing the cost of housing money, leading to an unsupported boom of all housing related industries and their derivatives before the sure bust when the fact that those taking the loans were not and did not create the value necessary to support them became apparent in defaults. We didn't see the collapse until late in BUSH II's presidency because the government via Fannie and Freddie kept buying up the toxic instruments - all with the unstated government backing. I don't know if Bush understood the situation or not. If he did early in his presidency, it would have been cowardice not to expose what Fannie / Freddie were doing, how bad the loan situation was, and be much more open about the situation than the administration ever was, even at the end. Regardless, I can't see any evidence that Bush's white house made the situation any better, and they probably made things worse.
Obama? Well, he's just continued the bailout policy that Bush decided on... though admittedly on a more grand scale. Once we went down the 'too big to fail' path... well, it'll be tough to get out of that dead end....One would think that at the very least the congressional sections responsible for "working with" Fannie and Freddie would be impeached, jailed, or at least voted out. But apparently scot free they go... Clinton *should* be in jail... The banks? Well, they certainly played by the rules set by the government... how much crony pushing did they do? Probably not much on the 'force me to lend badly' front. Probably A LOT on the, "be sure the govt buys up these insane loans were making" front, and the "if you let us go bust, the sky will fall" front....
Really, coming back to the article, a couple million to CEOs who really weren't the architects of this monstrosity makes very little difference... The real evil is that our federal government is in control of supposedly private lending institutions (and other things).... that was really the case by unspoken understanding for a long time. This means at least though, that the congressional groups running the show can't get away with blaming those awful Fannie / Freddie guys any longer (one would think, but never knows)... we all know now that they ARE those awful Fannie / Freddie guys. It's so odd. You'd think after all this, we'd all be crying "Never again let government artificially make loan money for ANY purpose cheaper than the market dictates -- we've seen the boom / bust this creates and we want NO more of THAT!" and "Never again let government act to be the backer, accepting the risk, that private industries take in doing business and lending!" And yet... we hear the exact opposite. We're loaning away to all manner of whacky business schemes with NO publication of the details, and no doubt NO method of getting our money back. And we CONTINUE to artificially suppress insterest rates. You'd think somebody WANTED to create an economic bomb.

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