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Just who deserves a government bailout?

Staff

Published Friday, September 26, 2008

It is not as complicated as you may think, the financial crisis. If you understand the concept of “Smoke and Mirrors” this is all pretty straightforward.

When the Federal Reserve made 1% interest loans available to their clients, the banking community, it was like popcorn at the movies, easy to sell, fun to profit, and quick to move. So all kinds of loans moved into the market, including ARM’s, no down payment loans, and what the industry fondly calls “liar loans” where borrowers simply fudged their income because no one really cared.

The banks loaned money about as easily as they gave out calendars, and the economy prospered…for a while. But when the housing market collapsed, and the loans started to go bad, suddenly there were no buyers and the banks ended up holding the bag, or in this case, the bad paper loans.

The scheme did work for a while though. The bank would loan the easy money, then re-sell the loans to either one of the five US Investment Banks (all now history or re-invented as commercial banks) or to Freddie Mac or Fannie Mae. If the loans went directly to the Investment banks they were grouped together with other investments, rated for their overall risk, and re-sold as securities to pension funds, foreign investors, mutual funds or even hedge funds.

If the loans went to Freddie Mac or Fannie Mae they were also clustered and then sold on Wall Street to the same buyers as securities. The beauty of the deal was that US home mortgages were the most stable investment in the world, that is, before easy money.

So these mortgages, often based upon overvalued prices, faulty appraisals, poor loan types and unqualified borrowers, moved and sold as though they were actually trusted investments.

But they never were trusted investments. They were packages of loans that never should have been made. So when the housing market collapsed, the loans almost instantly turned bad. That meant, in the industry, that no one would buy the bunched securities. So suddenly the stream from banks to investors dried up, leaving the banks holding the bad loans.

Now banks, unlike Investment banks, have some actual regulations, and have to hold reserve funds for anticipated losses. So if they cannot sell their loans to Investment banks, then they have to gather more money to cover their projected write-offs. If this happens then they have less money to lend. You can see now where this goes…you and I can no longer get a home loan or a car loan because our bank has to save its cash to write off these bad loans.

This is where the bail-out comes in. Now, in spite of what our leaders are telling us matters here, like CEO compensation and tough oversight, what really matters here is what price the government pays for the bad loans. The bad loan securities are already possible to sell, but the banks don’t want the prices they are offered, about thirty cents on the dollar. Should they accept these prices they must write off the other 70% and have the capital to pay for the write-off.

So while we write our congresswomen to tell them we don’t like the bail-out, the banks are flooding congress to get a high price on the securities sales, as high as 100%. Now just who would pay 100% to buy a mortgage of $500,000 on a home now valued at $300,000 with mortgagees who are in foreclosure?

Believe it or not, you and I may do just that.

WOULD YOU LIKE TO SHARE THIS STORY?

Jim Crawford is a contributing columnist for The Ironton Tribune and a former educator at Ohio University Southern.

Comments

Posted by Vil (anonymous) on September 26, 2008 at 2:44 p.m. (Suggest removal)

We have Bill Clinton to thank for this. He pressured the fed to lower rates and pressured Fannie and Freddie to give loans to minorities that did not have the credit or money to pay for these mortgages so they could live the 'American Dream'.

Yet Bush gets crapped on by the media because they don't know how to do research.

Posted by MasterChef (anonymous) on September 26, 2008 at 3:19 p.m.

(This comment was removed by the site staff.)

Posted by Vil (anonymous) on September 26, 2008 at 4:34 p.m. (Suggest removal)

And things were going great with that Republican controlled Congress.

If Bush would have done a stupid move like that you'd be all over it, as would I. You don't give people who can't afford home loans the home loans they can't afford.

The lenders and the borrowers are the ones at fault here, but Clinton did pressure to put the poicies in place that put us in this mess.

Posted by Vil (anonymous) on September 26, 2008 at 4:38 p.m. (Suggest removal)

poicies = policies

I don't blame Obama for what has happened, I'm blaming him for what WILL happen if he's elected. Big difference there.

Folks like you blame Bush if it rains when you have a picnic planned. I don't want to hear the bs you are cooking up.

Posted by MasterChef (anonymous) on September 26, 2008 at 5:47 p.m. (Suggest removal)

Look, this is tiresome. WHATEVER Clinton initiated Dumya and a republican-controlled Congress had six years to change. They and their believers need a passifier and a swat on the rump.

Posted by Noesis (anonymous) on September 26, 2008 at 5:58 p.m. (Suggest removal)

over the past 30 years democrats have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.

They were the ones who screamed — “REDLINING!” — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.

If they don’t comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.

[...]

The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.

The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.

The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical “housing rights” groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

HUD, in turn, pressured Fannie Mae and Freddie Mac to purchase more subprime mortgages, and Fannie and Freddie, in turn, donated to the campaigns of leading Democrats like Barney Frank and Pelosi who throttled investigations into fraud at the agencies.
http://tsfiles.wordpress.com/2008/09/17/...

Posted by Noesis (anonymous) on September 26, 2008 at 6:05 p.m. (Suggest removal)

The CRA was passed into law by the 95th United States Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community (that means the poor people too). That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions.

Clinton Administration Changes of 1995

In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs.

These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low (think welfare)- and moderate-income borrowers for home loans.
http://en.wikipedia.org/wiki/Community_R...

Posted by Noesis (anonymous) on September 26, 2008 at 6:08 p.m. (Suggest removal)

Posted by MasterChef (anonymous) on September 26, 2008 at 5:47 p.m. (Suggest removal)

Look, this is tiresome. WHATEVER Clinton initiated Dumya and a republican-controlled Congress had six years to change.
-----------------------------------------------------------------------------------------
Yes and since republicans didn't have a 60 vote majority, democrats prevented that change.

MasterChef, democrats control Congress now and they own the purse strings to the Iraqi war. Why are we still in Iraq, democrats promised if they were elected, they would get us out of there. It's because they don't have a 60 vote majority... same difference.

Posted by MasterChef (anonymous) on September 26, 2008 at 6:16 p.m. (Suggest removal)

We're still in Iraq because we still have Dumya. That's the ONLY reason. When Obama takes office, the 16 month time-clock starts running.

The right wingers had their chance. They didn't NEED 60 votes because nobody had even threatened a fillibuster. The republicans let it die so they could use it as a campaign issue.

Posted by Noesis (anonymous) on September 26, 2008 at 7:01 p.m. (Suggest removal)

MasterChef, the democrats PROMISED if they were elected the majority in Congress, they would get us out of Iraq. They knew that Bush was president. Why did they promise something they couldn't deliver on.

And MasterChef if republicans KNEW it was going to be a campaign issue, they would have forced the democrats to fillibuster. Not knowing it was going to be a campaign issue, they let it drop knowing they didn't have enough democrats to support the bill that there wasn't a chance in hades it would pass, so they let it drop.

Posted by keta (anonymous) on September 26, 2008 at 7:25 p.m. (Suggest removal)

Darn you, Bill Clinton. You've wrecked everything. Not.
A huge bank went belly-up yesterday. Another bank bought its assets for pennies on the dollar. That was hard on the belly-up bank, but no less than it deserved for the recklessness and greed that put it in its belly-up position. Please note that no taxpayer money was involved - everything shook out the way it logically should have. Seven billion dollars, on the other hand, means nobody gets punished, that it's business as usual, beginning immediately.

Posted by Noesis (anonymous) on September 26, 2008 at 7:29 p.m. (Suggest removal)

Oh and MasterChef, there's a reason republicans couldn't vote on it. It never made it out of committee. Chris Dodd, then the ranking member of the Banking Committee and now its chair bottled it up in the committe.

Posted by CommonSense (anonymous) on September 26, 2008 at 7:31 p.m. (Suggest removal)

"These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low (think welfare)- and moderate-income borrowers for home loans."

You had to be employed to get one of these loans.

I wonder what percentage of these loans went into default because of loss of employment. I know it isn't the main cause, but I know there has to be quite a few. There are so many people who did all they could to keep their homes, but when you lose your job and can't find another that pays enough to support the family, sometimes you just can't hang on any longer.

Posted by Noesis (anonymous) on September 26, 2008 at 7:32 p.m. (Suggest removal)

Reckless and greed Keta? How about the government requirements that they HAD to make loans to low income people?

Posted by Noesis (anonymous) on September 26, 2008 at 7:41 p.m. (Suggest removal)

Keta, here is a 2005 article fighting banking making bad investments into people who couldn't afford the loans:

Saving CRA: Last-Minute Push Launched to Oppose FED, FDIC, and OCC Plans to Water Down Community Reinvestment Act Rules for 1,500 Banks

(CSRwire) WASHINGTON, D.C. - In a major bid to generate additional public feedback in the final week before a comment period closes, the SaveCRA Web site (www.SaveCRA.org) is urging concerned Americans to send an email by no later than May 10, 2005 to the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) to oppose pending rules by the three agencies that would weaken existing Community Reinvestment Act (CRA) requirements for more than 1,500 banks.

A project of the National Community Capital Association (NCCA), the www.SaveCRA.org Web site was launched on October 14, 2004 to oppose pending FDIC rules to water down CRA rules and generated more than 500 emails by that earlier deadline. Under the current proposals from the three federal banking regulators, financial institutions with assets between $250 million and $1 billion no longer would be able to choose to conduct either services or investment, or neither, in low- and moderate-income communities.

NCCA President and CEO Mark Pinsky said: "Hardest hit by this ill-considered proposal will be struggling parts of the nation where CRA funds are critical to affordable housing, vitally needed community services, economic development, loans for small businesses (particularly those that are minority owned) and nonprofits, which are already starved for capital. For poor and struggling urban and rural areas across America, the rule is a real problem. We want to make sure that all people understand what is at stake and that they have a chance to speak up about it."

The full text of the suggested email message to the Federal Reserve, FDIC and OCC reads as follows:

"To whom it may concern:

Thank you for the opportunity to comment on proposed changes to the Community Reinvestment Act (CRA). This proposal is an improvement over the proposal issued in early 2004, but contains serious flaws that allow the CRA to fall short of its full potential to channel loans, investments, and services to low and moderate-income people and to underserved communities. http://www.csrwire.com/PressRelease.php?...

Posted by Slick77 (anonymous) on September 26, 2008 at 8:02 p.m. (Suggest removal)

Noesis...Hey! keep up the great facts as usual. I can't comment on this particular subject, so I will let you and Vil takes this one. I won't comment on something when I don't have all the facts and knowledge, unlike people who just blurt out anything. Well, that's my 2Cents worth on this one. ( if I still have 2Cents, according to the news, probably not! ) Talk to ya later........

Posted by Noesis (anonymous) on September 26, 2008 at 8:58 p.m. (Suggest removal)

The top three campaign donation recipients were Democrats, number two of which was Barack Obama, yet the media is laying mum on these facts. One wonders what would be going on in the media if John McCain were a top recipient of campaign donations from a market crashing, government bail-out getting organization like Fannie Mae?

The three top campaign donation recipients from Fannie Mae were all Democrats. Chairman of the Senate Banking Committee Senator Chris Dodd (D-CT) got $165,000, Senator Barack Obama (D-IL) was given $126,349, and failed presidential candidate Senator John Kerry (D-MA) took $111,000 from the folks at Fannie Mae. Is this information getting out there?

Most of the top Fannie executives were also Democrats each of whom worked closely with Democratic presidents and Barack Obama. Franklin Raines, Clinton White House budget director, ran Fannie Mae and pocketed $50 million. Jamie Gorelick was a Clinton Justice Department Official (famous for adding to our intelligence failures helping cause the attacks on 9/11) was paid $26 million. Jim Johnson, who most recently served on Obama’s VP search committee, was the CEO of Fannie Mae and has also made millions. These Clinton/Obama associates sat at the head of a failing financial agency all the while raking in millions and donating hundreds of thousands to top Democrats.
http://www.infowars.com/?p=4801

Posted by padanorr (David A. Norris) on September 27, 2008 at 7:12 a.m. (Suggest removal)

Noesis and Vil are correct. The current financial meltdown is a direct result of Bill Clinton's big social experiment gone bad.

I have a friend that works in the mortgage industry as an underwriter for US Banks. She tells me that UNDER LAW they have to consider foodstamps as income when considering a loan application.

I am sorry if you are on foodstamps you have NO business purchasing a house and applying for a mortgate. And also you do NOT have to have a job to qualify for the loan. As long as you have the bogus income.

Posted by MasterChef (anonymous) on September 27, 2008 at 8:28 a.m. (Suggest removal)

Only absolute morons would follow an absolute moron like Dumya for eight years. You guys have a good morning.

Posted by Noesis (anonymous) on September 27, 2008 at 9:35 a.m. (Suggest removal)

Well, I see somebody is upset because a coward kicked Obambi's butt last night.

Posted by Noesis (anonymous) on September 27, 2008 at 9:40 a.m. (Suggest removal)

Carter = Clinton = Obambi

Posted by Retro (anonymous) on September 27, 2008 at 9:47 a.m. (Suggest removal)

Real bright MasterChef. Looks like you brought a knife to a gun fight...LOL

All you've got is calling the President a cute name.

Posted by MasterChef (anonymous) on September 27, 2008 at 10:55 a.m. (Suggest removal)

McBush did ok. But, then, he's the self-proclaimed "foreign policy expert". Both candidates could've been stronger. And at the last minute the COWARD did show up. At least that gave the folks back in DC more time to try to patch up the mess the republicans could've prevented years ago.

Posted by Vil (anonymous) on September 27, 2008 at 1:38 p.m.

(This comment was removed by the site staff.)

Posted by MasterChef (anonymous) on September 27, 2008 at 2:41 p.m.

(This comment was removed by the site staff.)

Posted by Noesis (anonymous) on September 27, 2008 at 5:23 p.m. (Suggest removal)

MasterChef, the republicans would have fixed it if the greedy democrats weren't getting their pockets stuffed by Freddy and Fannie and opposing the regulations republicans wanted.

Posted by Noesis (anonymous) on September 27, 2008 at 5:58 p.m. (Suggest removal)

Obama GOONS enforce his version of reality:

...The Missouri Truth Squad will “respond quickly, forcefully, and aggressively when John McCain or his allies launch inaccurate claims or character attacks about Barack Obama, or when they distort Barack Obama’s record or plans.”

In a conference call Saturday with reporters from battleground states, Obama national campaign manager David Plouffe said those who spread lies and mistruths about the Illinois senator have to be “held accountable,” but did not elaborate how.

What is it with democrats wanting to kill freedom of speech?

Posted by Noesis (anonymous) on September 27, 2008 at 7:01 p.m. (Suggest removal)

Gov. Blunt Statement on Obama Campaign’s Abusive Use of Missouri Law Enforcement

JEFFERSON CITY - Gov. Matt Blunt today issued the following statement on news reports that have exposed plans by U.S. Senator Barack Obama to use Missouri law enforcement to threaten and intimidate his critics.

“St. Louis County Circuit Attorney Bob McCulloch, St. Louis City Circuit Attorney Jennifer Joyce, Jefferson County Sheriff Glenn Boyer, and Obama and the leader of his Missouri campaign Senator Claire McCaskill have attached the stench of police state tactics to the Obama-Biden campaign.

“What Senator Obama and his helpers are doing is scandalous beyond words, the party that claims to be the party of Thomas Jefferson is abusing the justice system and offices of public trust to silence political criticism with threats of prosecution and criminal punishment.

“This abuse of the law for intimidation insults the most sacred principles and ideals of Jefferson. I can think of nothing more offensive to Jefferson’s thinking than using the power of the state to deprive Americans of their civil rights. The only conceivable purpose of Messrs. McCulloch, Obama and the others is to frighten people away from expressing themselves, to chill free and open debate, to suppress support and donations to conservative organizations targeted by this anti-civil rights, to strangle criticism of Mr. Obama, to suppress ads about his support of higher taxes, and to choke out criticism on television, radio, the Internet, blogs, e-mail and daily conversation about the election.

“Barack Obama needs to grow up. Leftist blogs and others in the press constantly say false things about me and my family. Usually, we ignore false and scurrilous accusations because the purveyors have no credibility. When necessary, we refute them. Enlisting Missouri law enforcement to intimidate people and kill free debate is reminiscent of the Sedition Acts - not a free society.”

Posted by padanorr (David A. Norris) on September 27, 2008 at 7:34 p.m. (Suggest removal)

Posted by Noesis (anonymous) on September 27, 2008 at 7:01 p.m. (Suggest removal)

Gov. Blunt Statement on Obama Campaign’s Abusive Use of Missouri Law Enforcement

---------

I have said this before and I will say it again ... Obama is nothing more than a Chicago thug that will use any means to remove his opposition.

Posted by padanorr (David A. Norris) on September 27, 2008 at 7:41 p.m. (Suggest removal)

Posted by Noesis (anonymous) on September 27, 2008 at 7:01 p.m. (Suggest removal)

Gov. Blunt Statement on Obama Campaign’s Abusive Use of Missouri Law Enforcement

-------
Also I might add that the opinion article written some time ago comparing Obama to Hitler might have some validity. Using law enforement as a campaign truth squad has to be a new one for the books.

Posted by Noesis (anonymous) on September 27, 2008 at 8:47 p.m. (Suggest removal)

Watch out Padanorr before someone reports you to the Obama camp!!!

Posted by Noesis (anonymous) on September 27, 2008 at 8:50 p.m. (Suggest removal)

I wonder how long it will take for the Ironton liberals to start their own truth squad and start knocking on doors??? Pad, Retro, Slick and Vil, you better check your deadbolts... the brownshirt Omabots may come knocking.

Posted by Vil (anonymous) on September 27, 2008 at 8:51 p.m. (Suggest removal)

Wow, looks like Obama is the coward. I bet that piece of human excrement cries himself to sleep everynight because people are talking the truth about him.

Poor little Bawack. Someone give him his bottle and burp him before he goes to sleep.

Posted by energy (anonymous) on September 27, 2008 at 9:25 p.m.

(This comment was removed by the site staff.)

Posted by energy (anonymous) on September 27, 2008 at 9:31 p.m. (Suggest removal)

I don't blame Obama for what has happened, I'm blaming him for what WILL happen if he's elected. Big difference there.
Folks like you blame Bush if it rains when you have a picnic planned. I don't want to hear the bs you are cooking up.
***************************
You can't make it any worse than what
it is right now. Both Candidates are mum
on any plan, but the present direction is definitely
going down and we can't afford 4 more years
in this direction. You might want to get
used to eating chinese food.

Posted by Noesis (anonymous) on September 27, 2008 at 9:33 p.m. (Suggest removal)

Energy, it WAS Clinton who put laws into effect that got us into this mess. It was also democrats who fought republicans trying to regulate Freddie and Fannie. You might want to call it right-wing B.S. other people call them facts.

Posted by energy (anonymous) on September 27, 2008 at 9:36 p.m. (Suggest removal)

Despite having law enforcement officials on the truth squad, none of them have publicly said they will invoke their official powers to enforce facts about Obama’s record....
http://www.news-leader.com/apps/pbcs.dll......
What is it with democrats wanting to kill freedom of speech?
**********************************
Looks like Democrats are just using the republican
tactics they've used for years. Law enforcement ?
hummmm, sounds like "BIG BROTHER " to me

Posted by energy (anonymous) on September 27, 2008 at 9:48 p.m. (Suggest removal)

Posted by Noesis (anonymous) on September 26, 2008 at 7:29 p.m. (Suggest removal)
Oh and MasterChef, there's a reason republicans couldn't vote on it. It never made it out of committee. Chris Dodd, then the ranking member of the Banking Committee and now its chair bottled it up in the committe.
**********************************
I love all these comments going back and forth. hindsight is
20/20 vision. Nobody made an issue of it (Democrat OR Republican)
when they were making hand over fist mucho dollars on these loans.
But when there is a major glitch the fingers start pointing. We need
to fix this mess and make sure it doesn't happen again!
Everyone is at fault for this mess for electing these village idiots
in the first place , Democrat and Republican!

Posted by energy (anonymous) on September 27, 2008 at 9:53 p.m. (Suggest removal)

Posted by Noesis
Hummm, this was 1997 when enacted, congress
and senate were Republican controlled. Somehow
this smells bad.

Posted by Noesis (anonymous) on September 27, 2008 at 9:58 p.m. (Suggest removal)

Energy: hindsight is 20/20 vision.
-----------------------------------------------------------------------

Yes but McCain saw this coming and co-sponsored the fix in 2005. Democrats would not allow a vote on it.

Posted by energy (anonymous) on September 27, 2008 at 10 p.m. (Suggest removal)

Will someone remove that Budweiser Advertisement
on top which states that it's an "American Lager".
Budweiser is now a foreign owned company.....
False advertising

Posted by energy (anonymous) on September 27, 2008 at 10:10 p.m. (Suggest removal)

Posted by Noesis (anonymous) on September 27, 2008 at 9:58 p.m. (Suggest removal)
Energy: hindsight is 20/20 vision.
-----------------------------------------------------------------------
Yes but McCain saw this coming and co-sponsored the fix in 2005. Democrats would not allow a vote on it.
***********************************
Hmmmm 2005? A Republican controlled Congress,Senate
and President. Don't tell me he wasn't communicating
with them back then. Or were they just trying to ignore
him because of his wild temper regarding Rumsfield.

Posted by Slick77 (anonymous) on September 28, 2008 at 12:25 a.m. (Suggest removal)

Energy...Good observation about the Budweiser advertisement. Not just that, but combined with "Nascar" it doesn't help things. "Nascar" in my opinion does not represent America. It has been and still is a very "racists" sport. I'm sure I will get the negative comments from certain viewers around here, but that is my "well informed" opinion which I can back up with facts if needed. :)

Posted by Vil (anonymous) on September 28, 2008 at 3:28 p.m. (Suggest removal)

Saying Nascar is racist is a very ignorant statement. No facts can back up an ignorant statement like that.

Posted by padanorr (David A. Norris) on September 29, 2008 at 12:13 p.m. (Suggest removal)

I have a challenge for osu, neo, MasterChef and others that post in here that support Barack Obama.

My challenge is this, display your real name and lend some credibility to your posts.

As you will notice I am displaying my real name. If you want to support Obama and blast McCain that is fine ... but don't do it anonymously anymore.

I support McCain and what he stands for in this election. If you support Obama and what he stands for then don't be a coward and do it from the shadows.

If you want more information on displaying your real name read Mike Caldwell's blog at this link ...

http://www.irontontribune.com/weblogs/te...

Posted by Slick77 (anonymous) on September 29, 2008 at 7:37 p.m. (Suggest removal)

Hey Vil, Just wanted to say Hi, Sorry about the comment. Didn't mean to offend you. It is my personal opinion. If you want to talk more about this or anything else just contact me via tribune. Thanks, have a good evening.
Enjoying your comments otherwise.
:)

The Ironton Tribune

Sunday, March 21, 2010

Just who deserves a government bailout?

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