They must comply with the rules and regulations put on by: the Housing
Finance Agency, the Futures Trading Commission, the FDIC, the Federal
Reserve, the Office of the Comptroller of the Currency, The Office of
Thrift Supervision and also the Securities and Exchange Commission. With
all this federal control already in place someone in our over-populated
federal government should have said stop before things got out of hand.
For some insight into this situation, we need to go back to the initial
point, the GSE for housing. This is a Government Sponsored Enterprise
where Congress sets up businesses like Fannie Mae and Freddie Mac to
perform a special service, in this case, mortgage loans.
One of the unique features of GSEs is that they can't fail financially
because the government will make up any losses incurred by risky
behavior with tax money. Congress holds the reins and in this case Chris
Dodd (D, CT Chairman of the Senate Banking Committee and Barney Frank,
D-MA) of the House of Representatives was/is responsible for oversight.
Dodd, by the way, is being investigated by the Ethics Committee and is
not running again in November.
Now, along comes a desirable idea. Everyone should own their own home if
they want to. Under normal qualifications, people applying for
mortgages should need to show reasonable payback capability, like "Do
you have a job?" and "What is your income?" etc. After a while Dodd,
Frank and others thought that Fannie and Freddie weren't doing their
jobs because not enough mortgages were being issued and therefore put
the pressure on Fannie and Freddie to step it up.
At any rate, the housing market, sensing the need for more housing,
stepped up construction of single-family homes and condominiums but were
lagging behind the demand, causing prices to rise. Mortgage lenders,
afraid of being sued for discrimination under the Fair Housing Act,
loosened their mortgage qualifications one of which was the need to put
some skin in the game. A 20 percent down payment was pretty standard for
the industry. But, here we were dealing with lower income people, often
of some minority like black or Hispanic, who would certainly create a
lawsuit that lenders did not need or want. Because the demand was ahead
of the supply, prices of homes rose, in some areas like California and
Florida, dramatically. So, what to do. Some lenders would say, since the
value of this property you want will appreciate 20 percent in three
months, we'll waive the normal down payment, which just put more fuel on
the fire, by creating more demand, thus creating "politically correct
subprime mortgages" also known as "toxic assets."
In normal times, a local bank would issue mortgages to local people and
hold them. Now, they sell them to a "bundler" who puts many of them
together and issues stock against those assets, eliminating the risk to
the local issuing bank. Others issued Credit-Default-Swaps that were
insurance against default in the bundled mortgages.
While all this was going on, the directors of Fannie and Freddie
(F&F), were feeding gobs of campaign funds to Dodd and Frank as well
as President Obama when Senator from Illinois. You say, what's this, a
tax-supported GSE that insures its existence with our tax money? Yes,
and not only that but the $400 billion cap on bailout money for F&F
was lifted by the Obama administration and also allowed $6 million to be
paid as bonuses to their executives. For any of these facts see
www.judicialwatch.com.
When the Bush administration, with repeated attempts, tried to call a
halt to the issuance of subprime mortgages, Dodd and Frank didn't see
any problem, and therein lies the rub. No, the world recession did not
start with Wall Street, it was started by the American Congress. You can
have all the rules that Congress can devise, but if, for political
reasons, those charged with oversight and who are diverted by money from
doing their assigned tasks, the current proposed fix by President Obama
will not prevent future catastrophes, but it will provide political
control over finances.
I think President Obama knows this and is using Wall Street as a means
for dismantling capitalism. This and his other goals of controlling
energy, public education and national health care are all a direct road
to socialism.
Potter lives in Waitsfield.
