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Freddie Mac, When Are You Coming Back?
As housing implodes, is our nation at an economic tipping point?
BOSTON: Sorry Dr. Phil 2, it's time for us to do some whining, not about how bad things are but about what some bad guys are doing to destroy our country and our lives.
Whining of course is only a first step. After that, we need to recognize that we have a right, if not a duty, to talk about more than what the political candidates are talking about. We have to confront the real power brokers who have now broken our economy and are plunging us deeper and deeper into decline.
Are they, perhaps, "tipping" us, beyond that point of no return?
On Friday, July 11, as the world financial markets were quaking because of the threats to two government linked companies with five TRILLION dollars in mortgages, as the Senate rushed to complete a bail-out bill for homeowners that may not bail anyone out, and the Federal Reserve Bank announced tough new, and perhaps irrelevant regulations on a subprime realty market that has all but disappeared, news outlets were reporting the death of the owner of the Benihana restaurant chain and Larry King was doing another show about UFO's.
With a distraction machine working overtime, we seem to be living in a permanent three-room circus, with a constantly titillating sideshow often sucking up most of the airtime and attention. Britney Spears has replaced the bearded lady from days gone by as the iconic draw.
In the central ring of this circus is the political campaign with the only focus on the evolving Obama/McCain slugfest. Every soundbite, grimace, phrase and gasp is grist for endless punditizing with little in-depth analysis of the issues.
In the second ring, there's the news of the world that usually means superficial reporting about America in the world. Then comes the daily partial war body count and visuals about where the President is this week. Now we are also getting some news from China about the Olympics and back and forth about whether there will be an attack on Iran.
That's about it!
In the third ring, the economic crisis is slowly coming into focus only because it can't really be ignored, even though both major candidates try to focus on minor reforms rather than a structural transformation.
A year ago, the Dow was about to hit 14,000; this past week it dropped below 11,000. Panic, volatility, and fear can no longer be contained. On talk radio, conservative callers still mostly lambast irresponsible borrowers, but more and more recognize that this crisis is systemic and non-partisan in origins.
Even John McCain's ex-CEO, economic advisor Carly Fiorina, who of course doesn't want to blame anyone or name anyone, says "there was a situation where there was greed on Wall Street, there was a lack of transparency around a new set of financial instruments..., there were a whole new set of financial players who were less regulated than banks, and all that together created a situation, which now is rippling through the economy."
"The situation" -- that's a rather vague way of putting it.
As it turns out, one of McCain's closest advisors, Phil "Mr. Mental Depression" Gramm, played a direct role in planting the seeds of the subprime "situaton" that started the ball free-falling downhill and gathering more than mere moss.
Appearing on Democracy Now with Amy Goodman, journalist David Corn explained that it involved "a sly backroom legislative maneuver mounted by Phil Gramm, who was Republican chairman of the Senate Banking Committee in the '90s."
..."It was the week that the Supreme Court was giving the election to George W. Bush. As often happens in Washington, Congress had yet to pass most of the appropriation measures that are needed to before that Congress coming to a close, and so they were lumping together, you know, six, seven different appropriation bills into one mega bill, working all hours of the day...
And in the midst of all that chaos, Senator Phil Gramm slipped into this must-pass spending bill a 268-page bill, the Commodity Futures Modernization Act...a portion of the bill deregulated these financial instruments called "swaps...The problem is that these swaps, thanks to Phil Gramm's bill, are totally, totally unregulated, and the swap market is something like now about four times the size of Wall Street, in terms of securities that are regulated. And it really turned a lot of the economy into a secret casino, all this action going back and forth, people betting on bets.
And how this related to the subprime crisis is, about this same time, you know, securities firms started bundling all these bad or risky mortgages and securitizing them, and then they would sell these securities or buy them and then buy swaps or sell swaps to cover the possible loss. So it really enabled a lot of firms to go hog wild on the subprime stuff ....'"
The subprime "stuff" has now led to a massive rise in foreclosures and a fall in profits as investment banks are forced to write off billions in bad investments. That in turn destroyed credit markets and confidence in Wall Street. Even after interest rates were cut seven times by the Fed, little improvement was registered except the rise in joblessness and inflation.
And that, in turn is what is behind, at least in part, the current fall of mortgage giants Fannie Mae and Freddie Mac. Add in the Bush policies of lowering the value of the dollar, and you got higher oil prices. Add in speculators and short sellers and a total lack of effective regulation, and you get the possibility of a system collapse.
The Administration that led us into war overseas by raising fear of nukes has stood by while our economic well-being was being nuked.
The truth is that this crisis will not be turned around anytime soon. As economist Joshua Rosner puts it: "People say we're in the final innings of the credit crisis. We're in the late innings of the first game, and this is the World Series." The hedge fund Bridgewater Associates 'has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn (£800bn), four times official estimates and enough to pose a grave risk to the financial system.'
Banks are already failing. Just this past week, IndyMac Bank's assets were seized by federal regulators.The bank is considered the largest regulated thrift to fail and the second largest financial institution to close in U.S. history. This is the fifth bank to fail this year. More will follow
How did all this happen?
l. Warnings were ignored. One example: Bruce Marks, the CEO of NACA, The Neighborhood Assistance Corporation of America (Naca.com) which is leading the fight for affordable home ownership and opposing foreclosures testified in Congress in 2000 warning of the consequences of Fannie And Freddy getting into subprime lending. His concerns were noted and forgotten.
2. The Fed under Alan Greenspan encouraged the securitization of mortgages calling it "financial innovation." Today, he rails out at the crooks and criminals who cashed in on an industry he boostered.
3. The Wall Street firms ignored worries raised by their own risk managers and ploughed resources into the slimy waters of a shadowy underground banking system. They made a fortune -- until they didn't. Some were bailed out like Bear Stears via JP Morgan; others were taken over in various ways or encouraged to merge with stronger institutions.
Earlier this year, the FBI called many of their practices criminal and have already indicted hundreds in the mortgage business with only a few symbolic busts, so far, of truly fat cats. Nevertheless, much of the subprime "dream" now stands exposed as a subcrime scheme.
New rules by the Federal Reserve Bank seem too little and too late. As CNN reported,
"Had these rules been in place, many of these things wouldn't have happened," said Ken Wade, chief executive of NeighborWorks America, a national community revitalization group chartered by Congress whose board is made up of bank regulators. The late Edward Gramlich, a former Fed governor who served as chairman of NeighborWorks' board, pushed unsuccessfully to rein in the mortgage industry."
Now the Fed wants more power and seems to want to push The SEC aside which is the only regulatory body that did regulate in the pre-Bush era.
The Minyanville financial blog insists this will be a disaster:
"The Federal Reserve has mis-managed America's money supply. They have sucked vast wealth away from the middle class to support rich institutions which they call "the system". Why would we give vast new powers to the berries that run the Fed when they have proven they don't know what they are doing?"
As for Congress, AP reports "Final passage of a package has been delayed for close to two months due to substantive disagreements as well as countless procedural delays."
On Thursday, Senator Dodd lamented how long it has taken to move the bill through. "Candidly, we can't wait any longer." He cited the latest foreclosure data, showing 250,000 new foreclosure filings in June, up 53% from a year earlier."
"A lot of us hoped the market would take care of all of this and there would be light at the end of the tunnel," Dodd said. "[But now] the only light at the end of the tunnel is a train coming."
That train is headed for a train wreck. The Wall Street Journal insists the new bill will not help most homeowners in need: " Lawmakers can say they've "done something" about the crisis. The only problem is the bill won't work. Contractual and incentive problems in securitized mortgages will defeat the legislation's attempt to provide a significant amount of relief."
So we are back to minus square one. Fannie and Freddy may be too big to fail but Washington taking on their trillion dollar obligations could double our already unsustainable national debt. This disaster already impacts the global economy. The losses are at 80 percent. The market has ignored reassurances by the likes of Treasury Secretary "Hank" "Goldman Sachs" Paulson.
Do you want to pay for this catastrophe?
Guess what. You may have to. We all may. We may not have a choice. So even if you don't really care about your neighbors loosing their homes and others losing their jobs, it's in your interest to take action. One way to start is to press the banks to restructure their loans and make them affordable so homeowners can stay in their homes.
News Dissector Danny Schechter made In Debt We Trust (indebtwetrust.org) warning of the crisis, and has written PLUNDER (www.newsdissector.com/Plunder) a new book chronicling its spread. He is also involved in the HomeSweetHome Project with songs against foreclosures. http://www.homesweethomeproject.com. Comments to Dissector@mediachannel.org
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32 Comments so far
Show AllSSDD. Remember Bear Stearns? Remember the savings and loan disaster way, way back? Here it is yet again. Get a truckload of chapstick; We're about to suck it big time again.
Whining? Is that what our Founding Document said to do with Tyrany? Whine about it?
No, it's time for a Counter Coup to remove these Tyrants Rex. Our our money mad government will never come to their senses. We can only hope to bring them to their knees by making their money worthless.
Read John Perkins, "Confessions of an Economic Hitman". The monsters have simply done to the US what they've done around the globe. Same exact strategy. Burden the bugger with such horrendous debt that the people become chattel slaves to that debt - forever.
The $$ should be worthless by Xmas, so get those goodies now K-Mart shoppers.
That's the beauty of being too big to fail, they can depend on our tax revenues to bail them out no matter what. Socialism for conglomerates and banks and capitalism for the rest of us.
a blogger asks "Why would we give vast new powers to the berries that run the Fed when they have proven they don't know what they are doing?"
all the evidence points to the fed's knowing exactly what it's doing: loading us and our grandchildren up with debt, borrowing us into insolvency so that any question of funding social programs is "off the table" a la reagan; printing funny money as fast as the presses wil spit it out, devaluing a currency that was once the standard of stability; and transferring vast amounts of wealth upward in what may be the last battle of the class war.
let the blame-shifting begin (remember condi's non-mea-culpa after 9/11? "no one could have predicted...")
well, in both cases many did, but they were marginalized or ignored.
Money as Dept
http://video.google.com/videoplay?docid=-9050474362583451279
People need to focus on LOCAL economics because the ELITE BANKING SYSTEM is being imploded just like WTC7 was.
The government has written the laws to protect the criminals and hand our REAL property over to them.
The government isn't going to save you folks.
luckylefty I agree John Perkins is a true Hero.
Yes, and while they big boys have cashed out they are screaming that the one thing the average Joe shouldn't do is cash out. Their hopes are that the average invester will somehow keep this house of cards from collapsing so they can continue to profite. But even when it does fall they don't care; they have cashed out and have built their gated communities, and can hire blackwater to keep you from seeking revenge. Ain't technology wonderful? I think I'll change my handle to "like a bad schwarzenegger movie"
How do I buy Euros without anybody knowing?
It should be remembered that Clinton Sec of Treasury Robert Rubin, a scion of Wall St., greased the wheels for every bit of this de-regulatory crap.
Also, the founding chair of the Democratic Leadership Council (DLC), who also happened to have a side job as President of the United States, signed off on every bit of this and was the loudest cheerleader for "letting the markets decide."
Clinton's economic crimes and the damamge that they cause are equal in quality, if not quantity, to Bush's crimes against humanity.
Barack and McCain are their political children.
You should also watch the Money Masters :
http://www.moviesfoundonline.com/money_masters.php
and read Ron Pauls Revolution.
As the republican grasroot are beginning to realize that their elected officials really are sosialistic in their policy - you democrats should understand that there have been NO free marked under the last 150 year of western capitalism. It's been a continious transfer of wealth from the commoners to the benefit of the ogliarcy.
I belive you would stand a fair chance of regain your freedom if you could stop fighting eachother and start going for the real enemy. As long as you think a vote every forth year between two persons who both are bougth and paid for by your enemy, will make any difference - you truly are a lost case.
PS. Don't think it is better anywhere else - but as long as the dollar maintain status as reserve currency, it's you who are holding the key...
qbaldsmoove: The first way to buy Euros without anybody knowing is to buy American Depositary Receipts of European companies. For example, Vestas Wind in Copenhagen is vws.co on the Copenhagen stock ticker, and its American version that you can easily buy and sell is vwsyf.pk. They're pretty clean. Wind power is pretty popular these days.
You can also take your savings/checking account to Everbank and have your savings denominated in Euros. I don't know at all if Everbank is the least bit clean. I do know that the U.S. Dollar is not clean at all, and holders of the U.S. Dollar will pay for the Iraq/Afghanistan Occupation by having the dollar become worth a tenth of a euro, and then you'll pay ten times the price for some food. Happy after-war taxing, the free market way!
I have long urged people not to run on the bank. Walk. Some analyst named 300 shaky banks today.
When The Constitution was agreed upon, this was called "indentured servitude," wasn't it?
Into perpetuity...
bring back the national bank and close the fed.
Danny Schechter, I really appreciate your informative articles. Hope we can continue to hear from you on Common Dreams. Your articles help me to understand the situation better than most articles I find. You seem to have the ability to cut right to the core of the situation.
Yeah DogLeg, that's what it was called,"indentured servitude". The south promised they would rise again, & boy did they ever!
The US is the powerhouse of the world, so we will all go down together.
The Euro is overvalued and many Euroeconomies are struggling. The housing market in Spain is in freefall for example. Britain is about to crumple too.
I'd buy land - like the Chinese an Russians are doing. New Zealand looks good, or Sweden perhaps? They're not making any more of it and it'll always have a value - for food!
Fannie and Freddie were always b.s., propped up by government and in no way reflective of the true mortgage rates. To bail them out now would be more of the same, good money (hah!) after bad. Our government, and particularly this administration, is addicted to fiscal fantasizing, and that needs to stop. Their policies have done irreparable damage to millions of Americans, with no foreseeable end in sight.
"a sly backroom legislative maneuver mounted by Phil Gramm, who was Republican chairman of the Senate Banking Committee in the '90s."
It seems that it is always easy for us to blame someone for a sly back room maneuver. It must also be recognized that everybody knows what goes on who wants to know what goes on. Democrats like Republicans are untrained and uneducated in the fundamentals of economics and thus are easily bamboozled by the Wall Street hucksters. But even ones that are the "smart ones" who are the lead "sheep" in the House and Senate know that their bread is buttered not in their districts by their constituents but by the money that comes from fundraisers in THE District of Columbia.
Goodman and Corn are good at letting us know about the things that go wrong and how corrupt things are, but it really does more to cause the disenfranchisement common people from participation than the establishment's actual disenfranchisement of common people from participation.
Trained helplessness left, center and right.
We must realize that it is our systemic problem that needs to be the remedied. Reporters need to focus on the big picture and that outside the amusing soap opera elections that distract us from solving our economic problems, people need to organize to produce locally buy locally and participate locally. There are no easy ways to go about creating economic equality and a just society; there is only the hard work daily to make sure that everyone has enough.
Yalla Yalla
Well the Office of Federal Housing Enterprise Oversight director, Armando Falcon, issued a warning of systemic crisis with Fannie Mae and Freddie Mac in 2003 and Bush canned his butt 1 day later:
http://www.larouchepub.com/other/2003/3010ofheo_rpt.html
Undoubtedly replaced him with another 'heck of a job Brownie' type. There are government employees who actually do their jobs with integrity...it seems the elected ones never seem to do so except a tiny handful.
Good that the writers performed there duty in alerting us to the mess created by 'colleteralized debt obligation' burnout. That's the technical name for those huge chunks of funny money that are draining our economy as white as the proverbial sheet. Everything is rolled up in those monsters, car notes, credit cards and mortgages.
Read the articles at CounterPunch.org by searching the site for colleteralized debt obligation and you'll see we've been snookered.
Research Obama's campaign finance manager and find out she was one of the first people involved in those collateral whacha ma jiggies.
Moderately reasonable mortgage loans are the safest possible investment. Years ago during actual bad old regulation days I asked a old savings and loan mortgage loan officer how many people he had to foreclose on.
He said ZERO. He had renegotiated some and helped people sell their house to protect their credit and his savings and loan. You see all the money he loaned was from local investors and they wanted to make a reasonable amount of money without making risky loans, cheating people or funding law firms.
"The Administration that led us into war overseas by raising fear of nukes has stood by while our economic well-being was being nuked."
Since Bush took office in 2001, his administration, with the help of the Senate Finance Committee has also increased the "national debt limit" FIVE times.
Do you remember a previous article on CD entitled "Sallie Mae's Menage À Trois"? http://www.commondreams.org/archive/2007/04/19/635/
Congress is about to establish another one at our expense!
A little knowm fact about this private company that deserves to be nationalized: it's where many administration lackeys are sent to reap millions as "executives" in order to continue to se self-sufficient public servants or to reap their just rewards.
This is why Ron Paul wanted to get rid of the Fed.
Gail,
Thanks for the link. It increasingly reinforces why I can not and do not trust the government. Everyone ought to read the article your link provided. Unf***ing believable!
So what happens if we all stop paying our credit card bills? We could do that together! Tell the bank to just write it off , with the other billions!
While I appreciate the title's clever riff on Martha and the Vandellas' "Jimmy Mack," I prefer Curtis Mayfield's "Freddy's Dead," particularly this bit:
Everybody's misused him,
Ripped him up and abused him.
Another junkie plan,
Pushin' dope for the man.
[In this case a "junkie" is an investment banker, and "dope" equates to CDOs riddled with questionable debt and prone to failure (thank you Phil Graham).]
Even a layperson like myself can see thta this bailout is yet another well orchestrated plan to fleece us of billions, once again. Seems to be a favorite Bush Klan pastime
Gail, I went back to the link. Surprized I was the first comment and you the second. Fuck Sallie Mae, and they still call themselves that name whether they sold or not. I thought I read somewhere that Sallie and Freddie were owned by the same whatever. Not only do I feel fucked over by Sallie but Congress as well. Not only that, I think the banks are into the scam as well. I took out all my loans at the same bank, Norwest. Norwest sold them to several other banking institutions which then required a min. monthly payment each. Added up the total was more than I could pay comfortably and then came Sallie, who contacted me. Lower monthly with the catch of 1 percent higher interest, which then put me at 9%. I was stuck at this high interest rate while some years into repaying the typical loan rate was down to 3%, but Sallie was protected and I couldn't reconsolidate. It's ironic that I wrote Albert Lord July 2005 about default, meanwhile Congress that same month finally passes a law unrestricting their policy.
Nanoo July 15th, 2008 8:47 am
Nanoo,
Don't feel so bad. Many of us had to pay 9% for student loans. We did it and are alive and well!
Secondly, the criminal justice system seems to be run by criminals.
There is no doubt in my mind that the Sub Prime lenders have created a economic situation from which we may well never escape. No business can survive the total loss of cash flow. Nothing has been done to create a lesser amount of positive cash flow by decreasing mortgage amounts or by fixed rate, lower payment mortgages for those in forclosure.
In ratio and proportion: for every 5% increase in the selling price of residential real estate there is a certain percentage of Buyers who no longer qualify to buy that particular home. This happened in San Diego iin the 90's. A comparative "bubble" took place and homes were "turned around" in 24 hours. But as prices increased and continued to increase it came to point where only 10% of the Buyers were financially capable of buying the majority of the available homes at inflated prices. The turn around time then became 24 months.
A loss is not the same as a "total" loss. Forclosures are a total loss. Thousands and thousands of homes vacant and unkept with no one to buy at the foreclosure amount remaining as middle class buyers suffer with unemployment and bad credit. As prices come down the occupants find themselves in a "reverse equity" situation. With only 5-10% down they now owe more than the property is worth and the "adjustment" of the interest rate has made their payment impossible. In that situation what other choice do they have but turn in the keys and leave?
The Sub-Prime lenders and the Mortgage Brokers were the major culprits. However, all was done with the cooperation of the Appraisers, Brokers and the Agents who readily bilked the Buyers with misinformation and incorrect, if not criminal, qualifing. Same reason here as in the quest for crude oil: Greed and Profit.
The Government is now turning it's back to the Sub Prime Lenders and the Secondary Mortgage Market. With this I do not disagree. However, they are turning their back on the American People. To which I do disagree.
So if the feds take over all these mortgages, when you forclose they will wind up taking over all this property. And as someone said, they are not making anymore of it. Real-estate monopoly.
Mosanto food monopoly.
Telcom imunity.
All the pieces are in place!
"The only way to start is to press the banks to restructure their loans and make them affordable so homeowners can stay in their homes"
This is the conclusion to this article??? The last time I checked my bank didn't give a shit what I thought about anything. What a rediculous conclusion to what was a reasonably good article. Is this the best we can hope for? trying to "press our banks"? How on earth is this going to be helpful to all of us whose retirement is going to be worth about 30% of what it once was, while our present dollars are spending for less and less daily because our country is bankrupt? Didn't anybody notice that the bailout of Fannie and Freddie will amount to loaning out the rest of the total value of the entire US Treasury? Our country is bankrupt and the Federal Reserve will make it up with the printing press.