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This story is already being covered on DK (see below), but I know it to be a bigger story than has yet been apprehended here. I'm one of the majority of folks on DK who wishes that Obama were a better President than he has so far demonstrated himself to be. At the same time, I'm one of the majority of folks on DK who easily appreciate the fact that Obama has been a far better President than his detractors (major detractors, certainly, but even minor detractors) claim he has been. In short, I've never before written of Pres. Obama in terms even as negative as those that follow.

But, has he left any other alternative?      
Text of the recent speech by Pres. Obama
DK Diary #1, War on Error
DK Diary #2, by Phoebe Loosinhouse

The key, to me, is the inclusion in his speech of the following language - "But as home prices rise, we can’t just re-inflate a housing bubble.  That’s the second thing I’m here to talk about today: laying a rock-solid foundation to make sure the kind of crisis we just went through never happens again.

That begins with winding down the companies known as Fannie Mae and Freddie Mac.  For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag.  It was “heads we win, tails you lose.”  And it was wrong."

A couple of things. (1) It was exactly the private lenders/big banks that Pres. Obama wants to replace Fannie and Freddie with who inflated both the housing and mortgage bubbles that burst in unison in 2007-2008; (2) It was exactly the big banks that provided no societal benefits in that crisis scenario, while requiring far bigger bailouts than Fannie and Freddie did; and (3) Only the big banks, and no other part of our society/economy appear to be posed to reap windfalls from the abolition of Fannie and Freddie being proposed.

I first became aware of the major concerted effort of the big banks to eliminate Fannie and Freddie sometime in the 1998 to 2000 time frame. When I came out of prison in 1993 I had friends who made an opening in mortgages for me. I started at the bottom but was well in middle to upper management by 1998. Along the way I started to see, in industry press, the catch phrase "taxpayers holding the bag", and quickly came to understand that that meant that the big banks wanted to "abolish the implicit "Full faith and Credit" guarantee of the federal government that Fannie and Freddie function under because of having been created by Congressional Charter". In short, that means that Fannie and Freddie can always beat the posted 30 year fixed loan rate of the big banks by at least 1% because everyone believes that the feds will bailout F & F easily, whereas, everyone also believes that the big banks, by virtue of being too big to fail, can also get bailed out, but with a bit more effort, and at an end cost of enough to require a 1% higher mortage interest rate to make up for the difference in the two situations.

So the big banks started to really, really, really do some things, starting around 1998 to try to make up the difference. First, they started a major lobbying push to try to get F&F abolished, expensive but being able to finally get cut into a multi-trillion dollar lending segment that they had been virtually cut out of is no small potatoes. Next, they increased their focus on construction lending, and lending to landlords, knowing that, because F&F simply did none of that type of business they would face no F&F competition in these areas. (The down side for the rest of us, of course, was the whole housing bubble, as distinct from the mortgage bubble. All of the actual speculation on housing overconstruction occured over in this arena, and F&F don't have fingerprint one in this crime scene.) Lastly, and in spite of their myriad screams of innocense, only the big banks (and not Fannie, Freddie, FHA, or VA at all) carried the banner of "Homeownership For All" to the ridiculous extremes that resulted in "The Mortgage Bubble".

"The Mortgage Bubble" means two seperate things, in the context of current events. (1) Too many people who couldn't really pay for houses ended up being on the hook for the loans they were given to make home purchases. And the big banks caused almost 100% of this outcome, because only they did "No Income, No Down Payment, Bad Credit, and Teaser Starter Rate" "Mortgage Products". (2) And the other critical role played by the Big Banks was that only they, with their vast armies of financial wizards in the back room, conned "The Main Street Part of Wall Street" into believing that there was any substance to their version of "Collateralized Mortgage Securities" that ended up being the smoking mountain of financial turds that ultimately came only a whisker away from collapsing the entire worldwide economy.

And we all know how that worked out.

But what seems to be missing at this point is why Pres. Obama wants to go for Round Two (on steroids?) of a guaranteed replay of "The Great Recession".

Is the only answer that we can come up with really to put the fox in charge of the henhouse?

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Comment Preferences

  •  Tip Jar (13+ / 0-)

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Thu Aug 08, 2013 at 09:21:15 PM PDT

  •  This NY Times Chart Says Look Before 1998 (2+ / 0-)
    Recommended by:
    kurt, Sunspots

    This is not an expertise of mine but the skyrocketing housing curve started much earlier. However there is an inflection point around 98 when house "values" had already surpassed 100 year peaks, where house "value" growth kicked in an afterburner.

    Image Hosted by

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Thu Aug 08, 2013 at 09:34:21 PM PDT

    •  When I started in mortgage in 1993, there was only (1+ / 0-)
      Recommended by:

      what's called "Plain Vanilla" lending. By 2000, the Big Banks started to develop "products" (because they couldn't compete with Fannie and Freddie on rates), and lots of folks wanting to be homeowners started paying attention. And the "marketing" folks kicked in also.

      The end result was that many shoppers were able to become buyers, but not nearly enough of them could afford to make the housepayment. Things went really ugly from there until the big crash, but the escalation was almost entirely in the "private (non F&F) sector".

      There can be no protection locally if we're content to ignore the fact that there are no controls globally.

      by oldpotsmuggler on Thu Aug 08, 2013 at 10:02:36 PM PDT

      [ Parent ]

      •  You are wrong. It was the shadow banks (1+ / 0-)
        Recommended by:
        johnny wurster

        like Golden West, Countrywide, and IndyMac who developed the exotic mortgage products like balloon ARMs.

        In 2000 the bank was one of the highest rated stocks in the industry. Golden West was mentioned industry-wide in a positive light, once described as "They are in a sweet spot right now in the mortgage business, and that is driving extraordinary earnings compared to other thrifts. They are the best ARM lender, and they have superior interest rate management".[8] As with the late 1980s and early 1990s, Golden West continued to expand assets and lending opportunities during the market decline after a burst of refinancing.

        Golden West was purchased by big bank Wachovia and poisoned it to death in 2008.

        Countrywide poisoned Bank of America.

        "The way to see by faith is to shut the eye of reason." - Thomas Paine

        by shrike on Fri Aug 09, 2013 at 04:11:18 AM PDT

        [ Parent ]

        •  What you say is not untrue, but it still is only (0+ / 0-)

          part of the truth. Golden West did do some lending for its own portfolio, but my understanding was that even it resorted to some securitization. Countrywide/Indymac (both founded by Angelo Mozilo) had no portfolio and were heavy, heavy securitizers. Wall Street is owned by Big Banks, and Big Banks are owned by Wall Street.

          One of the worst mortgage offenders was Aurora Loan Services, a Lehman Brothers Company. And so it went with every banking biggie and every Brokerage Biggie (both domestic and international, by the way).

          And none of the three you mention ever put a penny into the plot to disband F&F.

          There can be no protection locally if we're content to ignore the fact that there are no controls globally.

          by oldpotsmuggler on Fri Aug 09, 2013 at 10:27:27 AM PDT

          [ Parent ]

  •  It's late.. (2+ / 0-)
    Recommended by:
    WheninRome, Aspe4

    But weren't Fannie and Freddy quasi-privatized back in the 60s for some stupid reason?

    This Rover crossed over.. Willie Nelson, written by Dorothy Fields

    by Karl Rover on Thu Aug 08, 2013 at 09:41:08 PM PDT

  •  I can't even begin (4+ / 0-)
    Recommended by:
    WheninRome, ffour, PhilK, Sunspots

    to feign surprise . . . it's what he is and who he works for.

    For almost five years now he has done the wrong things about the economy . . . every step of the way.  The chance of him doing the right thing now (not that it's even possible now, after what has gone before) is zero.

    Zero point zero zero.

    Fake Left, Drive Right . . . not my idea of a Democrat . . .

    by Deward Hastings on Thu Aug 08, 2013 at 09:55:54 PM PDT

  •  All I know is that this latest run up in prices (7+ / 0-)

    seems like another bubble to me. Our rental went from being 10K underwater a year ago to being 50+ positive. Nothing fundamental I can see to support it. It's on the market. We will likely accept the offer on the table tomorrow. Obama's speech did not inspire me. I think that socially his heart is in the right place but financially, he is owned by goldman sachs.

    if a habitat is flooded, the improvement for target fishes increases by an infinite percentage...because a habitat suitability index that is even a tiny fraction of 1 is still infinitely higher than zero, which is the suitability of dry land to fishes.

    by mrsgoo on Thu Aug 08, 2013 at 10:10:56 PM PDT

    •  I don't know when you bought (0+ / 0-)

      the place, what you paid, or where you were at when the crash hit.

      It looks to me like at least part of this is rebound.

      I'm happy for you.

      There can be no protection locally if we're content to ignore the fact that there are no controls globally.

      by oldpotsmuggler on Thu Aug 08, 2013 at 10:22:13 PM PDT

      [ Parent ]

  •  Remember, He Was Raised As Part of Ruling Elite! (1+ / 0-)
    Recommended by:

    When you go to private school from childhood, you are taught who gets and who doesn't matter.  Members of the elite get the best job opportunities and are encouraged to marry within their class.  
    In Obama's case, at least he is a Democrat and has a little sympathy for lesser classes.

  •  Loan "products" (3+ / 0-)
    Recommended by:
    Creosote, Sunspots, oldpotsmuggler

    NINJA - loans - no income, no job, no assets, but sure, we'll give you a mortgage because home prices are rising so fast you'll have so much equity in a month you can turn around and sell and make a profit

    100% investor loans - same spiel as above. At the height of the boom, close to 30% of the sales were investor loans. Many of these amateur investor/flippers/landlords got creamed when the music stopped

    Multiple Choice Payment type loans- where someone could pay the fully amortized rate, interest only, the "minimum payment" or skip a payment once a year (or something like that). Gee, what a surprise when people didn't realize they should be picking the most expensive option every month and were instead choosing one of the other options, creating "negative amortization" (owing more money than you did to start with). I honestly thought that negative amortization loans were outlawed sometime in the 80's but guess not.

    These loans were the "candy" that was waved at often inexperienced and  naive consumers. The banks and originators knew better - all they wanted to do was write these loans and then get them the hell off their books and sold to a mortgage securitizer who would bundle them and get them rated Prime Angus loans even though they were textured vegetable product.

    As far as I am aware, these were the innovative products of "private capital"

    Fannie and Freddie are just the scapegoats for the industry overall when they are actually among the LEAST culpable for the meltdown. They were very late to the subprime party.

    “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

    by Phoebe Loosinhouse on Fri Aug 09, 2013 at 03:43:23 AM PDT

    •  Few seem to see this picture as clearly as you and (1+ / 0-)
      Recommended by:
      Phoebe Loosinhouse

      I do. That's exactly why I don't want to hear Pres. Obama blitely mouthing the talking points that the Big Banks have used against F&F for well over a decade. (And typically with support only from the Republican side of the aisle.)

      There can be no protection locally if we're content to ignore the fact that there are no controls globally.

      by oldpotsmuggler on Fri Aug 09, 2013 at 10:39:07 AM PDT

      [ Parent ]

      •  Fannie and Freddie's role right this (1+ / 0-)
        Recommended by:

        moment is to be the sacrificial goat.

        They provide an extremely useful tool for TPTB to misdirect and concentrate the public's anger away from the private bank, mortgage and securities companies.

        Barney Frank has retired, and the Community Re-Investment Act (of 1977!) has been absolved except by the most abject Fox and Hannity following morons so Fannie and Freddie along with all those "irresponsible homeowners" have to pick up all the punishment and retribution slack.

        “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

        by Phoebe Loosinhouse on Fri Aug 09, 2013 at 11:46:23 AM PDT

        [ Parent ]

  •  Obama Now Favoring Big Banks? (3+ / 0-)
    Recommended by:
    PhilK, OnlyWords, Sunspots

    He always has.

    "The problem with posting quotes off the Internet is you never know if they're genuine."--Gen. George Washington at the Battle of Gettysburg, February 30, 1908

    by Aspe4 on Fri Aug 09, 2013 at 04:08:23 AM PDT

  •  so you're defending a system in which (1+ / 0-)
    Recommended by:

    profit is private but losses are public?  

      •  Have you possibly failed to notice that Fannie Mae (0+ / 0-)

        and Freddie Mac are currently owned by the taxpayers? I have taken no position on the status quo, but I'll never see surrendering to the Big Banks as an acceptable "solution".

        There can be no protection locally if we're content to ignore the fact that there are no controls globally.

        by oldpotsmuggler on Fri Aug 09, 2013 at 10:59:47 AM PDT

        [ Parent ]

    •  It depends upon how you define "profits" and how (0+ / 0-)

      you want to account for the actions which actually caused the losses. I make no effort to glorify F&F, and you make no effort to try to quantify the public benefit received by millions, and millions, and millions of lower and middle class homeowners who received cut rate "conventional" mortgage loans. Feel free to dispute that policy decision if you want to, but please also notice that I didn't take a stand on either side of that argument. The only thing that I don't want to see is things made worse than they have ever been since the thirties.

      There can be no protection locally if we're content to ignore the fact that there are no controls globally.

      by oldpotsmuggler on Fri Aug 09, 2013 at 10:55:59 AM PDT

      [ Parent ]

  •  I'll just add this to the ongoing (2+ / 0-)
    Recommended by:
    Sunspots, oldpotsmuggler

    discussion - it's by Robert Kuttner from 2008 and gives a pretty good historical perspective of Fannie and Freddie

    Nationalize Fannie Mae? It Worked Until It Was Privatized

    *Ordinary homeowners got suckered so that a few fat cats could get very rich.

    *The needless damage to the mortgage sector has wreaked much wider harm on the economy -- causing other people to lose jobs, not get raises, lose health coverage and suffer losses to their net worth because of collapsing housing prices.

    *This was all the fruit of ultra-free-market ideology, as carried out by an opportunistic Wall Street-Washington axis.

    *In competent hands, government can do some things more reliably than Wall Street.

    He notes that it was a bi-partisan group of fat cats.

    “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

    by Phoebe Loosinhouse on Fri Aug 09, 2013 at 04:43:54 AM PDT

  •  Housing prices have to be artificially (1+ / 0-)
    Recommended by:

    propped up because too many people are dependent on the inflated prices. This is the ugly reality of the housing market. I can't see any way out of it.

    Houses should have never increased in value they way they did. They don't get better and they don't produce anything. During the US boom years a house cost about a year's salary. That's were the price should have stayed. But everybody wanted to play the game but now the game is over and nobody knows what to do.

    We're fools whether we dance or not, so we might as well dance.

    by PowWowPollock on Fri Aug 09, 2013 at 05:03:09 AM PDT

    •  We very clearly need to be having a wide ranging (0+ / 0-)

      discussion on ways to outlaw purely speculative financial behavior, and I'm pessimistic about seeing that day when that actually happens. Speculation builds bubbles, and bursting bubbles can and do take down whole national economies (and more, in this latest example).

      There can be no protection locally if we're content to ignore the fact that there are no controls globally.

      by oldpotsmuggler on Fri Aug 09, 2013 at 11:05:55 AM PDT

      [ Parent ]

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