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Origins of an American Kleptocracy

Marla Singer's picture




 

Some days ago we wondered aloud at the blank check extended to Fannie and Freddie along with the suspiciously convenient timing of those announcements on Christmas Day.  Back then we wondered if we had been told the entire story.  To wit:

So.  Let us summarize:

 

We do not expect the GSEs to grow their portfolios at all, so we are fixing the bloated portfolio problem by easing the portfolio caps to permit a quarter trillion dollar expansion thereof.

 

We do not expect either of the GSEs to need more help from the Treasury, so we are responding to the underutilized $400 billion "lifeline" the GSEs have with the Treasury ($111 of which is currently used) by expanding it to... infinity.

 

Oh, and though they have collectively lost nearly $200 billion, we are paying the CEOs around $6 million each.

 

Great work team!  It's already almost 11:00.  Let's go to lunch.

The other shoe having now dropped, Bloomberg has joined in our skepticism:

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

 

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

Wallison continues:

“It was always safe to buy these notes,” he said. The U.S. government was always going to stand behind them. They’re as good as Treasury notes.”

We are no longer sure this is the most inspiring comparison. Wallison also chimes in via the Wall Street Journal and points to a darker vein shot through the GSE story:

New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.

 

In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.

 

But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. When these rates began to show up early in 2007, it was apparent something was seriously wrong with assumptions on which AAA ratings had been based.

 

Losses, it was now certain, would invade the AAA tranches of the mortgage-backed securities outstanding. Investors, having lost confidence in the ratings, fled the MBS market and ultimately the market for all asset-backed securities. They have not yet returned.

It has become conventional wisdom, perhaps even cliche, to pin the origins of the credit crisis on the big banks or, AIG or even the practice of financial modeling.  Certainly, these actors have received the most play in the media, and have now endured the focus of populist ire for more than a year.  We now think that the analysis leading commentators to focus blame on these entities is fatally flawed.

We have seen no credible data that any of the large banks or other underwriters of mortgage backed securities ("MBSs") or collaterized debt obligations ("CDOs") or firms like AIG selling protection on same actually misrepresented the character of underlying collateral.  This is in direct contrast to the allegations of Edward Pinto as printed by the Wall Street Journal.  If Pinto is correct such that the mis-marking of mortgages by the GSEs and the discovery thereof destroyed confidence in the accuracy of ratings in mortgage backed securities and their derivatives (and it seems probable to suspect that he is) then it seems almost beyond question that the policies (or policy malfeasance) of Fannie and Freddie, and not the actions of large banks or firms like AIG are the proximate cause of not just the credit crisis, but also the continuing multi-act, multi-bailout farce that continues to be passed off to the public as necessary "stimulus."

It takes only a cursory examination to suspect that misdirection plays a key part in the latest act of the ongoing crisis theater of the absurd.  Misdirection to distract attention from the key complicity of GSEs in the crisis.  Misdirection to deflect scrutiny away from the political personalities from both sides of the aisle responsible.  Misdirection to conceal what could only be described as the most damaging acts of accounting and securities fraud in the history of accounting, securities or fraud.

Precious few assumptions are required to come to conclusions laying responsibility for the largest economic disaster in recent memory at the feet of the GSEs.

First, that the GSEs had substantial influence over the mortgage market.

This is a no-brainer with the GSEs either holding or guaranteeing 51% of outstanding home mortgage debt in 2003.  To put this in perspective, that figure was around 33% of the GDP of the entire United States in 2003.  Read that last line again.  Anyone wishing to play in the market had to compete with the rates set by Fannie and Freddie.

Second, that the GSEs artificially depressed rates (read: underpriced risk).

This is equally trivial to find given that this precise mandate has been the express purpose of the GSEs since at least 1993.  The GSEs were not tasked with increasing the capacity for mortgage lending.  They were tasked with making loans "affordable."  They used a number of tools to do so, but the key elements were acting as a proxy for quasi-government guarantees and bundling mortgages into risk tiers to act as a sort of clearing house for securitization pools.  It is often said that providing a guarantee (particularly governmental) reduces risk.  This is, of course, a fantasy.  All that explicitly or implicitly tax dollar backed guarantees do is socialize risk.  However, they manage to do so without requiring consolidation of the resulting liabilities on the government's balance sheet.  Convenient that, yes?  A guarantee is a subsidy.  Period.  Failing to understand this is what permitted the political class to mislead the American public into thinking that cheap loans for everything from housing to small businesses to education (the next fiscal disaster on the horizon) come with no cost.  (Or that cheap debt wouldn't pump up the price of everything from education to housing).  Today's pundits seem to enjoy blaming "moral hazard" (by which they mean "corporate moral hazard") for the crisis.  Oddly, government guarantees, particularly those that everyone assumes will be costless, are not typically part of this definition.

These assumptions, on their own should be sufficient to indict the GSEs, the totally unqualified and unaccountable recipients of political payoffs who occupied the executive offices of these fiscal singularities1 and their other supporters (including the voters who continued year after year to return these jokers to public office) on charges of gross negligence.

If, as Pinto suggests, we add purposeful misrepresentation of underlying collateral to the mix three things become apparent:

First, absent some intervening criminal act by actors farther downstream (and we may yet find some), we have isolated absolutely the cause of all that followed.

Second, it becomes quite easy to construct a criminal case for literally millions of counts of accounting, securities, wire and mail fraud against the GSEs.  To the extent executives at Fannie and Freddie signed off on financial statements disclosing the portion of their balance sheets that held "AAA" securities and these had been purposefully misidentified we should be exploring prosecution for violations under e.g., Sarbanes-Oxley.  (Given, however, Rham Emanuel's involvement in Freddie and Fannie, we aren't holding our breath).

Third, given the presence of blatant government price fixing in more than a third of the entire economy, the United States hasn't been anything like a "free market" since before 2003.

It should shock you that literally a third of the U.S. economy should become a playground for the social experiments of any political group of any party affiliation.

It probably will not shock you (since you are reading Zero Hedge) to find what may be the largest example of securities fraud ever directly connected to elected officials of the United States and their cronies.

Taking a step back, it should shock you that power over literally a third of the U.S. economy should ever have been allowed to become concentrated in two entities with blatantly socialist aims and under the control of executives with no relevant qualifications of any note other than loose purse strings on their political contribution satchels.

What should grip readers with even more substantial alarm is the combination of blank checking for Fannie and Freddie backstops, and the shifty manner in which these disclosures were made.  Is it possible anymore to doubt that the administration simply lied through its teeth while promising us it expects no need of increased credit lines for the GSEs while simultaneously expanding same literally to infinity?

Given that Fannie, Freddie and the FHA have now taken up the mandate of supporting housing prices at any cost (to the taxpayer via endless bailouts and unlimited credit) is it possible in any way to credit the current "upturn" to fundamentals?  When we factor in similar capture of the FDIC and the like, where does this leave us, exactly?

Permit us to ask a few questions:

1.  Why are Fannie and Freddie still operating in any way whatsoever?

2.  Given that their credibility for reliable (or even remotely non-fiction) financial disclosure nears complete obliteration, who is likely to buy anything from these entities in the future?  (If you said "The Fed" you may advance to the bonus round).  Surely the conflict of interest implicit in government ownership does nothing to improve the situation.  Perhaps the news that the Fed plans to issue securities to shrink its balance sheet and reverse "quantitative easing" describes an attempt to securitize the tattered reputation of the GSEs?  Will the Fed simply aggregate its balance sheet and issue tranches?  Does that make the Fed simple the collateralized debt obligation ("CDO") of last resort?  Who will do the rating?  Who will be writing protection on CDO Fed Tranch A-1 (AAA)?

3.  Given that neither entity is currently monitored by an Inspector General (despite what used to be statutory language so mandating) and both entities are completely captured by the current administration, how can it be anything other than insanity to expect any result from these entities other than the formation (or expansion) of a ravenous fiscal black hole?

4.  Given increasing government control beyond Fannie and Freddie that now extends far beyond 33% of GDP, what can we expect if we continue to permit political parties of any stripe to exercise command and control influence over what is now probably a simple majority of our economy?

There was a time when we hoped that the United States would learn its lesson with respect to permitting political control over large swaths of private markets.  Today that time seems very long ago, and somewhat naive.

Perhaps we are being too harsh on the likes of Barney Frank and other GSE proponents.  Adopting a slighty more relativistic economic morality, we might count Frank as one of the greatest legislators of all time.  Consider:

To the extent Mr. Frank and his ilk self-identify as advocates for low-cost housing for those ill-able to afford it, or beset by poor credit, the last 20 years have represented the largest single wealth transfer (composed primarily of real estate and flat screen TVs) to that sector known to us.  Not only that, but given the de facto nationalization of MBS portfolios (we'll give you three guesses who have been the largest MBS buyers over the last several quarters) the GSEs and their supporters have managed to get taxpayers to pay for it all.  Of course, had they simply proposed such a measure in Congress it would have been laughed from the chamber.  And yet, it almost seems as if these individuals simply wrote a multi-trillion dollar check to their constituents that happened to be drawn on the United States Treasury.

It almost seems this way because it was this way.

  • 1. Just consider Fannie Mae's torrid leadership history: James A. Johnson (Fannie CEO 1991-1998, Democratic luminary, Obama fundraiser, John Kerry vice presidential selection committee chair, $21 million in Fannie compensation). Franklin Raines (Fannie CEO 1999-2004, Clinton's Director Office of Management and Budget, $90 million+ in Fannie compensation later the subject of a civil suit) Daniel Mudd (Fannie CEO 2005-2008, $80 million in Fannie compensation) Herbert M. Allison (Fannie CEO 2008-2009, National Finance Chair, John McCain Campaign).  Freddie's record is no better.
 

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Fri, 01/01/2010 - 23:40 | 180293 Anonymous
Anonymous's picture

The Fan/Fred move was the final step in creating a control economy. The Fourth Branch of US government is complete and they no longer need Congress or China or other third parties to continue the Ponzi scheme ad infinitem. Watch for the Job Guarantee program next.

Sat, 01/02/2010 - 10:15 | 180479 wang
wang's picture

Calcualted Risk wrote on this a few days ago and called the entire issue

 "a huge nothingburger"

http://www.calculatedriskblog.com/2009/12/fannie-freddie-changes.html

 

Tim Duy chimed in with a similar sentiment where he states

 

"I don't think this is really an expansion of the bailout"

 

http://economistsview.typepad.com/timduy/2009/12/why-christmas-eve.html

Sat, 01/02/2010 - 10:18 | 180482 ghostfaceinvestah
ghostfaceinvestah's picture

Bingo.

Fri, 01/01/2010 - 23:44 | 180295 wesa
wesa's picture

"Why are Fannie and Freddie still operating in any way whatsoever?"

They are apparently in business to make home loans affordable, courtesy of our Congress.  They have done their job.

The only problem is that they have also done a good job of crippling our financial system.

 

 

Fri, 01/01/2010 - 23:48 | 180301 Silver Bullet
Silver Bullet's picture

They worked fine for decades until Wall St got into the business and thy had to lower their standards for what mortagages they would buy. And then...TIMBER!

Fri, 01/01/2010 - 23:54 | 180303 Marla Singer
Marla Singer's picture

Sorry, can you walk me through the steps you took to get to this conclusion?

Sat, 01/02/2010 - 00:05 | 180309 Anonymous
Anonymous's picture

See Marla, even as early as 1993 those nefarious Wall Streeters were pushing the helpless, powerless FNM and FRE to relabel their own crappy loans as "prime."

With sophistry like Silver Bullet's you could just as easily argue that Wall Street was crowded into making subprime loans by the GSE's dominance of the prime mortgage market with their "implicit" guarantee-backed debt issuance. But that wouldn't allow one to pin the blame for the crisis on "capitalism" as I'm sure he is seeking to do.

Sat, 01/02/2010 - 01:00 | 180345 Silver Bullet
Silver Bullet's picture

Yessssssssssssssss.

I'm blaming capitalism. You got me!

...Fucking dipshit.

Mon, 01/04/2010 - 18:58 | 182458 Anonymous
Anonymous's picture

Dear Silver Bullet, aka fucking dipshit.

Brilliant ... and such elegant manners.

You must be a politician seeing as how you have conveniently swept decades of legislation under the rug and pulled out the classic Democrat response to anyone who dares expose the opposite side of any issue you happen to be on ... demean the one who exposes the stupidity and falsehood of your argument and turn a blind eye to the facts.

Let's review some of the facts, shall we?

Yes, fucking dipshit, Fannie and Freddie provided a bona fide public service until your accomplices, the Democrats, pushed social engineering over economics starting with Jimmy Carter and the Community Reinvestment Act (CRA), followed by a massively expanded (and purely political) mandate in CRA II - Bill Clinton's contribution to this debacle.

The scam was protected by those fierce watchdogs of fiscal responsibility and integrity, Chris Dodd and Barney Frank, and financed by their Democrat accomplices over at Fannie and Freddie.

Who are you trying to kid?

Next thing you'll tell us is that the Global Scamming (sorry, I meant Warming) Scheme was not Al Gore's brainchild and that he didn't stand to benefit in his position as Partner at Kleiner Perkins, and that the paid off scientists just made minor, honest mistakes.

Sad ... fucking dipshit.

The truth will come out regarding this great housing disaster just as it did for global warming and is in the process of occurring with Health Care. When it does the Dem's (and any Repubs involved - like Kent Conrad) will get thrown out of office come November.

To argue otherwise demonstrates the shamelessness of your position.

Tue, 01/05/2010 - 16:18 | 183272 Arthor Bearing
Arthor Bearing's picture

You simplify issues to suit your beliefs like anyone, and you're pretty sensitive

Sat, 01/02/2010 - 00:11 | 180312 Silver Bullet
Silver Bullet's picture

Well, Fannie has been around since the late 30's with little in the way of problems. Then, Wall St. decides to get into wide, mass scale securitization of mortgages. In order for Fannie and co. to compete, they have to lower their standards (Remember, at this time, the F & F boys were much more private then public institutions, incentive for being profitbale was much higher.)

So we have 60 decent years of Fannie and 25 years of Freddie. So this is simple, add Wall St. to Fannie and Freddie's effective monopoly on the market and F & F clearly were not ready for the competition.

Sat, 01/02/2010 - 00:17 | 180316 Stevm30
Stevm30's picture

"In order for Fannie and co. to compete, they have to lower their standards..."

Nominated for most ignorant post of the (albeit short) year.

Sat, 01/02/2010 - 00:22 | 180319 Anonymous
Anonymous's picture

You forgot the part where he said the GSEs' "monopoly was not ready for the competition."

Hurrr Durrrrr....

Sat, 01/02/2010 - 00:26 | 180323 Silver Bullet
Silver Bullet's picture

Could you please elaborate?

Are you suggesting that Fannie and Freddie didn't lower their standards in the past 10 years?

Or, are you attempting to be sarcastic and condescending in saying that they have always had low standards for the mortgages they purchase? And in a sense, blaming poor people for our current crisis?

 

Sat, 01/02/2010 - 00:33 | 180331 Stevm30
Stevm30's picture

Pardon the flippant response... Fannie and Freddie borrow money at below market rate, so they have a structural advantage vs any Wall Street firm.

Sat, 01/02/2010 - 00:42 | 180335 Silver Bullet
Silver Bullet's picture

I understand that. However, if Wall St. is buying any and all mortgages, (no matter how ridiculous) Fannie and Freddie are going to have to lower their standards if they want to keep market share.

Sat, 01/02/2010 - 02:14 | 180376 Stevm30
Stevm30's picture

Please define, as specifically as possible, to what you refer when you write "Wall Street."  Investors?  Banks?  Bankers?  Executives?  The actual physical area of Manhattan called "Wall Street?"

Mon, 01/04/2010 - 11:23 | 181952 Anonymous
Anonymous's picture

Anything east of the Appalachians and north of the Mason-Dixon line is Wall Street. South and west is Pitchforkland, Jesusland, whatever you want to call it. The people in Pitchforkland are mad at the people on Wall Street. They will rise up in spontaneous revolution, which will be put down by the leader of Wall Street, aka POTUS, with the help of UN troops. Shortly after the insurrection is quashed, the powers that be will begin the enslavement of all. Those who can will flee to the capital of Pitchforkland (aka Texas) where the people are simply too ornery and stubborn to submit. They will fight to the last man if necessary, but it won't be necessary. The hubris of Wall Street will cause it to underestimate the will of the people in Pitchforkland. I mean, seriously, they can't even beat a ragtag bunch of rebels in Afghanistan. What chance do they have of marching into Austin or San Antonio?

Out of the ashes, a new republic will be born. One where people can afford to buy homes for cash if they choose. There will be attempts to establish a financial district in Dallas. They will be routinely ignored by the majority of the people who are more worried about the loss of the honeybee and their inability to buy ammo. We will elect as our new president Mike Leach, the former football coach at Texas Tech. He will lock Yankee dissenters in dark rooms until they submit. The rest of us will be free.

Guns up!

At least that's the way I see it.

Sat, 01/02/2010 - 08:58 | 180454 Anonymous
Anonymous's picture

Sorry but the rate advantage is peanuts compared to the advatantages Wall Street got:

- Upfronted profits, leverage, fees, multiple expansion....

Sat, 01/02/2010 - 11:09 | 180519 Anonymous
Anonymous's picture

It is not blaming the poor to realize lowering lending standards will lead to default. The point is, the people who profited from the act of lowering standards and passing it on further to gain greater market share violated securities laws.
Great try at defaulting the topic to sympathy...

Sat, 01/02/2010 - 01:15 | 180355 mberry8870
mberry8870's picture

Agreed.

Sat, 01/02/2010 - 00:20 | 180317 Cursive
Cursive's picture

I would add the repeal of Glass-Steagall and the merger of commercial and investment banking.  In the search for more and more money to feed the Ponzi, you need less and less oversight, looser lending standards and ever looser money.

Sat, 01/02/2010 - 00:28 | 180325 Anonymous
Anonymous's picture

The point is that the GSE's were part and parcel of the implementation of loose standards and loose money, and one that came along much earlier than the repeal of Glass-Steagall. What other purpose is there for creating lenders with an implicit government guarantee than to provide easy credit where the market would otherwise refuse?

Sat, 01/02/2010 - 00:51 | 180341 Anonymous
Anonymous's picture

This was Robert Rubin's grand vision to keep feeding the bottom of the pyramid:

"Citigroup officials said they saw tremendous lending potential in Mexico and hoped to use the company's Banamex brand name to serve the fast-growing Hispanic population in the United States as well. Citigroup's vice chairman, Robert E. Rubin, engineered the $20 billion bailout of the Mexican financial system when he was United States Treasury secretary and helped put the latest deal together. Officials from Grupo Financiero Banamex-Accival, known as Banacci, called him about a month ago, he said in an interview yesterday. ''Today's announcement represents Citigroup's commitment to Mexico and to the belief in the potential of this country, to the belief in the further integration of Mexico and the U.S. economy, and to the grander vision of the North American economy,'' Mr. Rubin said at a press conference."

Sat, 11/06/2010 - 18:50 | 705696 sohbetme
sohbetme's picture

I like your ideas and thoughts. by chat sohbet Greetigns..

Sat, 01/02/2010 - 01:06 | 180348 Marla Singer
Marla Singer's picture

I find this line of argument simply fascinating, primarily for its complete paucity of facts and the depth of torture applied to the logic therein.  Let's take the assumptions one by one:

Well, Fannie has been around since the late 30's with little in the way of problems.

Relying on this assumption in the instant argument would require of us the further assumptions that:

The Fannie of the "late 30's" resembled the Fannie of, say, 1993.  Given the absolute flood of mortgage related legislation in the 1980s and the 1990s as Congress discovered it could use HUD and the GSEs to manipulate the market this seems like a very weak (even reckless) position to take.  Let's just take a small sample of the proposed legislation that was making the rounds in 1989-1990:

The HUD Reform Act of 1989: To ensure competitiveness in procedures for approving applications for housing assistance and to provide for refinancing of mortgages, loans, and advances of credit under the lower income homeownership program of section 235 of the National Housing Act.

The Homebuyers and Renters Relief Act of 1989: To increase the affordability of homeownership for first-time homebuyers and promote the development of low-income rental housing.

The Housing Opportunity Zones Act of 1990: To remove legislative and administrative barriers to the production of new and substantially rehabilitated housing that is affordable to lower-, moderate-, and middle-income families.

The Department of Housing and Urban Development Accountability Act of 1989: To prevent abuses of the process for selection for housing assistance under programs administered by the Secretary of Housing and Urban Development.

The Community Housing Investment Partnership Act.

The Recycling of Existing Assets for Cost-Effective Housing Act of 1989: To authorize the Secretary of Housing and Urban Development to make grants to States to establish revolving funds to assist low- and moderate-income homebuyers and renters.

The Low-Income Housing Credit Act of 1989: To amend the Internal Revenue Code of 1986 to improve the effectiveness of the low-income housing credit.

The Low Income Housing Preservation Act of 1989.

The Housing Affordability Act.

Homeownership and Opportunity for People Everywhere Act of 1990 (The "HOPE" Act). "There are authorized to be appropriated for grants under this title $96,000,000 for fiscal year 1991, $260,000,000 for fiscal year 1992, and $400,000,000 for fiscal year 1993. Sums appropriated pursuant to this subsection shall remain available until expended."

Fair Lending Enforcement Act of 1990: To amend the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act.

The Housing and Community Development Act of 1989.

The Housing and Community Development Act of 1990.

The Community Housing Investment Partnership Act.

The Homeownership Assistance Act of 1989: To authorize the insurance of certain mortgages for first-time homebuyers, and for other purposes.

The Home Mortgage Overcharge Prevention Act of 1989: To amend the National Housing Act to limit the amount of interest paid by a homebuyer upon the prepayment of a mortgage insured under the Department of Housing and Urban Development single-family mortgage insurance program.

The Neighborhood Mortgage Lenders Accountability Act: If any examination of an approved mortgagee by the Secretary (including an examination under subsection (d)) discloses that the mortgagee has failed, in the determination of the Secretary, to meet the lending needs of the community served by the mortgage (as determined by the Secretary under subsection (a)(1)) with respect to residential housing lending, the Secretary may, in the discretion of the Secretary, require that the mortgagee, for continued status as an approved mortgagee for purposes of this Act, develop and submit a plan for remedying such deficiencies.

The First-Time Homebuyers Assistance Act of 1989: To authorize the Secretary of Housing and Urban Development to establish a demonstration program to insure mortgages with no downpayment for moderate-income first-time homebuying families.

The Homeownership Through Sweat Equity Act of 1989: To authorize the Secretary of Housing and Urban Development to carry out a demonstration program of providing grants to housing development agencies to acquire abandoned and vacant housing for rehabilitation and rehabitation by homeless and low-income families.

Getting the picture yet?

This fantasy that Fannie and Freddie just coasted along benignly before Wall Street showed up is just delusional.

Then, Wall St. decides to get into wide, mass scale securitization of mortgages. In order for Fannie and co. to compete, they have to lower their standards.

Quiz: Who did the first mortgage securitization?  Ginnie Mae.  1970.

Amount of pooled mortgages: $7.5 trillion.

Amount securized by or guaranteed by GSEs or government agencies: $5 trillion.

Wow, if only Wall Street hadn't gotten involved!

Only someone willfully blind or selling something would assert that, given this kind of legislative meddling even back in 1989, GSEs and Congress are mere victims in this disaster.  It continues to shock me that people repeat this stuff.  Then I wake up and it doesn't shock me at all anymore.

Sat, 01/02/2010 - 03:12 | 180383 Anonymous
Anonymous's picture

Marla: your (very) short history of securitization scratches me right where I itch. Can you (or anyone else, really) point me in the right direction on where one might find a history on the origins, development, and proliferation of the securitization model?

Sat, 01/02/2010 - 13:07 | 180553 heatbarrier
heatbarrier's picture

Modern MBS starts with REMICs in 1986 and ABS starts in 1985.

http://financialservices.house.gov/media/pdf/110503cc.pdf

Ms. Singer, attractive woman such as yourself, perhaps you should look at the history of non-agency MBS and ABS before putting all the blame on GSEs?

http://www.fdic.gov/bank/analytical/regional/ro20063q/na/2006_fall01.html

On the other hand, you are too kind with Jim Johnson, the rabbit hole goes much deeper,

http://en.wikipedia.org/wiki/James_A._Johnson_(businessman)

As for "Origins of an American Kleptocracy", well, that would require more than a short essay.

Sat, 01/02/2010 - 17:39 | 180675 Howard_Beale
Howard_Beale's picture

Actually, the REMIC replaced the CMO, which were underwritten in 1983 by Salomon, First Boston, etc. The original CMO was usually a 3 traunche deal. The REMIC launch turned it all into a shitstorm with deals having as many as 108 traunches (Kidder's Mike Vranos created the most toxic deals) by the early 90's. I was there for the show so I know of what I speak.

I might add that much of the legislation occurred at the time of the S&L meltdown and the creation of the Resolution Trust Corp. FIRREA was enacted and thrifts were liquidated which had served a large role in the mortgage lending arena prior to the mess. It's all connected, folks.

Tue, 01/05/2010 - 07:31 | 182836 Anonymous
Sat, 01/02/2010 - 08:16 | 180444 Scooby Dooby Doo
Scooby Dooby Doo's picture

1. Why are Fannie and Freddie still operating in any way whatsoever?

Any idea how much foreign investment is loaded up on the Mac family? If that family sees any sizable long term losses the run on Treasuries would be epic. Hence the full scale taxpayer backed support. It's for our own good, youknow.

Sat, 01/02/2010 - 10:59 | 180509 Anonymous
Anonymous's picture

Or could the owners be very large public and private pension funds whose insolvency would make the social consequences of GM’s threatened collapse look like a picnic?

Sat, 01/02/2010 - 11:09 | 180518 justrichard
justrichard's picture

Marla, thanks for reporting Pinto's work on fraud by the GSEs and for your own succinct essay.  Proximate cause never seemed so clear.  Arguments to the contrary border on the bizarre.

Sat, 01/02/2010 - 12:54 | 180602 Orly
Orly's picture

It is clear that the basis of our financial problems have to do with the symbiotic relationship between Wall Street and Washin'DC.

The thread asks for some "proof" that Wall Street was there or- that legislation was somehow corrupted by Goldman bandits as a matter of course.  As everyone knows who has seen a gangsta flick, most of this stuff is done with a wink and a nod, a casual dinner over Sicilian spaghetti or even a nice rowboat trip in the middle of a lake in the middle of the night.  Nothing is ever codified or left with a paper trail!  C'mon, these boys are pros.

You won't be able to trace a line directly to such-and-so peson as the culprit here.  Instead, what you will find is a pervasive and insipid culture and method of thinking that led directly to a symbiosis throughout the entire process of getting people into as many mortgages as possible.

After the boy's club had been established, it seems that the whole scheme went entropic; barriers were broken through the revolving door of government and private business, such that one became the other, became the one.

Then, either they became so cannibalised and inbred that the very species developed into an exercise in fantasy finance and opaque self-preservation; or, the whole kit-and-kaboodle was deliberately moved off the reservation in order use sleight-of-hand accounting tricks and outright lies to defraud the American people of Trillions of their own dollars.

I cannot believe that these people were that smart (and they are smart, don't get me wrong...).  But I can believe that they would be that evil.  Either way, a travesty beyond belief.

Sun, 01/03/2010 - 18:35 | 181494 Anonymous
Anonymous's picture

+10 for this nuanced analysis.

To say that all the blame lies in either the gov or the financial sector is to ignore the deep incestuous relationship that binds them together. Gov does NOTHING without the approval of finance, and to-big-to-fail finance relies on gov to keep the ponzi scheme backstopped.

The definition of fascism is a merging of corporate and state power.

Sat, 01/02/2010 - 11:22 | 180523 Daedal
Daedal's picture

Marla, why have you not responded to any of Leo Kolivakis's posts? Given the obvious difference of opinion, I find it interesting that this has not yet happened -- nor has Leo responded to your posts. (as far as I know)

Sat, 01/02/2010 - 11:50 | 180542 hayleecomet
hayleecomet's picture

Right on, Marla. 

The information revealed in your writings keeps me on a steady flow of Pepdid-AC (max strength), as the hole in my gut continues to burn at each act of audacity by our government.

I hope that someday you and the writers at Zero Hedge will be able to come out of hiding and take credit for your incredible investigative journalism.

Readers, at least take the time to rate these articles.  It's a small offering, but at least it's a way to show our gratitude.

Thank you, Marla, and thank you to all the contributors at ZH.

 

 

Sat, 01/02/2010 - 15:04 | 180696 slovester
slovester's picture

+1 on all comments

Sat, 01/02/2010 - 15:31 | 180721 ConfederateH
ConfederateH's picture

Marla, I've only ever said this about the Marines and perhaps Petraeus. 

Marla, you are my hero!  The Democrats through Fannie and Freddie caused the entire melt down, and now they are continuing their good works throth the debasing of the currency by all their insane guarantees and money printing.

I'll say it again for anybody who can't get past their partisanship to figure it out.

THE DEMOCRATS ARE THE PROBLEM!

Sat, 01/02/2010 - 17:13 | 180771 mojine
mojine's picture

You are halfway correct.

and to mention "getting over partisanship" sheesh...

Tue, 01/05/2010 - 12:58 | 183077 Anonymous
Anonymous's picture

Agreed...

The irony of "getting over partisanship" by becoming partisan for the "other side" is very rich.

Democrat, Republican, Wall Street... There is plenty of blame for all of them, and the attempts to place it 1 or 2 of the 3 to protect one of the others are tranparent and pathetic imo.

Sun, 01/03/2010 - 05:27 | 181047 phaesed
phaesed's picture

Yeah, those Taxpayer funded wars costing American lives (of the disenfranchised poor of course, but make sure you don't blame those business owners paying minimum wage) are a definite boon to our economy. Thanks Republicans!

 

I mean after all, when you compare health care to the pleasure of blowing the head off an Iraqi kid.... who needs a healthy colon!

Sun, 01/03/2010 - 05:31 | 181049 Marla Singer
Marla Singer's picture

What's this have to do with the GSEs?

Sun, 01/03/2010 - 08:07 | 181073 ConfederateH
ConfederateH's picture

Phaesed, you are another Democrat in Denial.   Your new president is holding you 6 inches off of the ground with your back against the wall, with his hand around your throat, and he is bitch-slapping and spraying spittle on your face with his lies and corruption:  Withdrawel from Iraq, close Guantanamo, Fannie and Freddie bailouts,  Stimulus pork fest, $4Trillion Barney Frank emergency slush fund, Kow-towing, Transperency, Bi-partisanship, Paygo, GM bailout, GMAC bailouts and on and on and on.

And all you can do is point your finger at the Republicans.

You sir, are a flaming liberal partisan, in denial.  And you too, are the problem.

Sun, 01/03/2010 - 18:44 | 181500 Anonymous
Anonymous's picture

Pull your head outta the sand man. There is no difference between the parties these days. They're all bought and paid for. It's called The Establishment for a reason.

Sun, 01/03/2010 - 13:41 | 181193 berlinjames02
berlinjames02's picture

Marla,

1) I want to thank you for all your hard work! On several recent posts I've seen you defending your work. I really appreciate the content and hard work you, Tyler, and crew create every day. Thank you!

2) I am glad Silver Bullet asked this question and you responded because I've been thinking a lot about the 'natural' rate of US home ownership going forward. The info you provided coincides nicely with the data- beginning in 1990 the home ownership rate starts to take off. (http://www.census.gov/hhes/www/housing/hvs/charts/files/fig05.pdf) It peaked in 2007 at just under 70%, and has dropped to about 67.5%.

So, what will be the natural rate in the future? I think it'll be in the 63-64% range, which means another 3-4% of 'home owners' will become renters. It's fun to do financing tricks to create demand, but that doesn't mean people can afford the homes. (Take a look at real household incomes over the same time frame: http://en.wikipedia.org/wiki/File:Household_income_65_to_05.png)

That's why I love the green shooters claiming bottoms in the housing sector despite long term evidence suggesting the EXACT opposite.

Thanks again and keep up the GREAT WORK!

Sun, 01/03/2010 - 17:39 | 181426 RockyRacoon
RockyRacoon's picture

Good post! 

The same sentiment can be directed at the oft quoted "statistic" that the U. S. consumer is 70% of the economy. 

That number is soon be be proven inaccurate!

Tue, 01/05/2010 - 11:45 | 182983 Anonymous
Anonymous's picture

This is a great point! This statistic is thrown around as much as "Amen!" in a church service. The idea that consumers are in charge when the government has taken over such large portions of our housing industry is laughable. Thanks for a great and brief reality check! +1000

Mon, 01/04/2010 - 10:24 | 181899 Anonymous
Anonymous's picture

Marla-

Bear and Lehman and their associated subprime mortgage businesses were 100% non-Fannie/Freddie. The whole point of "subprime" is that it did not conform to Fanne/Freddie standard (on which FNM/FRE take ALL credit risk).

However you feel about these loans now (no-doc, low-doc, stated income, low money down, etc.) the FACT is they we absurdly profitable from the early 90s all the way to 2006. Bear and Lehman were there first and built the biggest businesses (Countrywide and small MBS brokers as well). In the early days, spread were too high as economic growth and house price increases caused ALL the loans to pay. Many billionaires were made.

THEN... and this is so typical of capitalism. Seeing all the money being made, everyone decided THE FUTURE WOULD BE LIKE THE RECENT PAST. And then we had a bubble. Bubbles are natural features of capitalist speculation (Internet stocks, Bonds and Japan in the 90s, Commodities in the 70s and 2007, Shipping stocks in 17th century England, Tulips, etc.

Looking back, fixing this problem was quite simple -- REGULATORS needed to demand MORE DOWNPAYMENT to secure the largest institutions. Its a shame no one did this. Regulators slept. The typical point of failure in the capitalist system is regulating the amount of leverage (Reg T). Its funny, because even today... the downpayment is not priced. I do not get a lower rate for 50% down on my home purchase. (Not even on Jumbo loans which are 99% market driven).

Please dont overstate the role of FNM/FRE/CRA of housing regulation in congress. This had little effect on housing speculation in south florida, pheonix, and southern california. States with better regulatory regimes have had drastically lower foreclosure problems.

The role of FNM/FRE themselves is also probably healthy and will continue. However they should not be "private for profits" and then the taxpayers problem when they lose money. Also remember FNM/FRE got in trouble for posting "too little earnings" just 2 years ago. How silly.

Sat, 01/02/2010 - 01:25 | 180363 Anonymous
Anonymous's picture

No, it's much worse than that because actually FNM was started in 1938 as a government entity, but jettisoned in 1968, where they of course floated shares and installed a board of directors and CEO. This latest government takeover is the second time around.

Sat, 01/02/2010 - 10:24 | 180487 ghostfaceinvestah
ghostfaceinvestah's picture

The saddest thing about that is, they were sold to the public to help pay for the Vietnam War.

Sun, 01/03/2010 - 05:29 | 181048 phaesed
phaesed's picture

Ghostface.... do you have a reference for that point of view? Seriously, no joke, I'm interested in researching that more.

Sun, 01/03/2010 - 20:56 | 181600 ghostfaceinvestah
ghostfaceinvestah's picture

It was a pretty commonly known fact at the time that of course has since been forgotten, but few would dispute it, here is a recent reference to it,you would need to go back to newspaper stories at the time to get more color I would guess.

http://www.time.com/time/business/article/0,8599,1822766,00.html

Sat, 01/02/2010 - 10:21 | 180485 ghostfaceinvestah
ghostfaceinvestah's picture

You clearly know nothing about the mortgage market.

From Marla's post:

"Second, that the GSEs artificially depressed rates (read: underpriced risk)."

Until 1/1/2007, the GSE's didn't even practice risk-based pricing (something Wall Street put into widespread use).  You had a 620FICO at 95LTV?  Same price as a 800 FICO at 50LTV to the GSEs.

It wasn't until the extension of loan level pricing adjustments into a FICO/LTV grid that they started properly pricing for risk.  Due to their ever-increasing CRA goals and lack of pricing sophistication, they were a disaster waiting to happen, with or without Wall Street.

Sat, 01/02/2010 - 15:11 | 180700 Anonymous
Anonymous's picture

"Well, Fannie has been around since the late 30's with little in the way of problems."

Silver Bullet, review the Community Reinvestment Act of 1977 requiring banks to lend to minority and low income borrowers. 15 years into it's history, Clinton decided there hadn't been enough lending to these sectors (remember 'red-lining'?) so he attached numerical quotas to this mandated lending. The banks rebelled rightly stating that the government couldn't require banks to make loans that weren't likely to be repaid. Voila! Clinton's financial engineers led by (drumroll....guess who? Bob Rubin!) invented sub-prime mortgage securitization which was implemented by Fan and Fred. Banks no longer had to hold these mortgages on their balance sheet as they were pooled, securitized and sold. If you want the culprit, it's Congress, the last two presidents, and the economic illiteracy of the American people.

And please, try to be civil in your replies....

Sat, 01/02/2010 - 00:01 | 180306 Anonymous
Anonymous's picture

"They worked fine for decades until Wall St got into the business and thy had to lower their standards"

Right, they just had no choice but to run like lemmings off the cliff. Didn't have anything to do with Barney Frank and others pushing them to create loads of EZ credit either. Sure. Ok.

Sat, 01/02/2010 - 15:12 | 180702 masterinchancery
masterinchancery's picture

"they had to lower their standards for what mortgages they would buy"--why?

While you're at it, please explain why we need a government agency, with hordes of richly paid political bureaucrats, to buy mortgages at all?

Mon, 01/04/2010 - 21:03 | 182554 BoeingSpaceliner797
BoeingSpaceliner797's picture

Just my two cents on why FNM/FRE were created/exist. 

When you allow financial institutions to engage in fractional reserve lending at 8-1, 9-1, 10-1 (and higher ratios) of loans to deposits, it doesn't take a very high default rates to render lenders insolvent.  Therefore, some kind of repository/clearing house to take the crappy loans off the banks balance sheets needed to be created (default/foreclosure as you know was one of several large issues during the Great Depression from which Fannie Mae arose).  At least they needed to at the time, probably to preserve what was left of the banking/financial system at the time as well as to preserve our beloved monetary system.

Again, JMO.

Sat, 01/02/2010 - 16:53 | 180757 Anonymous
Anonymous's picture

If they "want to make home loans affordable", they can let these artificially run up prices COME BACK DOWN TO REALITY, and be marked to market, not marked to fantasy!!!

People are waking up by the thousands to the fact that the banks are literally tethering them to 600K loans on homes that were only ever worth 300K. Nobody wants your lousy new terms when they still owe 600K for the debt trap.

Housing prices will crash--there is no way around it!

Fri, 01/01/2010 - 23:55 | 180304 Altan311
Altan311's picture

A masterpiece. 

Sat, 01/02/2010 - 00:17 | 180315 Cursive
Cursive's picture

It has become conventional wisdom, perhaps even cliche, to pin the origins of the credit crisis on the big banks or, AIG or even the practice of financial modeling.  Certainly, these actors have received the most play in the media, and have now endured the focus of populist ire for more than a year.  We now think that the analysis leading commentators to focus blame on these entities is fatally flawed.

Like holy hell.  Was this article ghost written by the collective general counsels of S&P, Fitch or Moody's?  AIG and the rest knew what was going on.  So I guess we're just going to ignore the rampant practice of side letters?  MBS and CDO's were created to extract large fees from a low margin business.  The lack of a clawback to the originators of the loans does not pass a "due care" test, much less a "Reasonable Man" test, for firms that were alleged Masters of the Universe.  AIG and the other big re-insurers engaged in this business because they saw the end game as the "faux force majeure" ploy (i.e. systemic risk = force majeure) for which it has come to be accepted.

Why was ISDA created?  Why were all of these powerful financial institutions constantly trying to escape the regulatory structure?

What was the Chuck Prince quote about keeping the dance going as long as the music was still playing?  The Ponzi was an open secret, which is all the more shocking.  No, you can't ring-fence the GSE's and claim that the fraud began and end within those halls.

Sat, 01/02/2010 - 00:40 | 180332 Anonymous
Anonymous's picture

Thank you Cursive. You nailed it.

This article is unadulterated horse $h!t!

Sat, 01/02/2010 - 00:49 | 180340 Cursive
Cursive's picture

@Anon Thanks.

Sat, 01/02/2010 - 03:19 | 180385 Reductio ad Absurdum
Reductio ad Absurdum's picture

No Cursive, you fucked up as usual. The article is warning the public about attempts to cover up government corruption and incompetence involving Fannie Mae and Freddie Mac. As part of the cover up, the article claims blame is being directed at "big banks or, AIG or even the practice of financial modeling." The article cites the "blank check extended to Fannie and Freddie along with the suspiciously convenient timing of those announcements on Christmas Day" as inspiration.

The article claims that whatever was going on at AIG and big banks, it was being presented correctly to the public:

We have seen no credible data that any of the large banks or other underwriters of mortgage backed securities ("MBSs") or collaterized debt obligations ("CDOs") or firms like AIG selling protection on same actually misrepresented the character of underlying collateral.

Cursive seems to agree with this, saying "The Ponzi was an open secret...".

On the other hand, the article claims the government has tried to hide its own corruption through things like the Christmas Day blank check (i.e., "the shifty manner in which these disclosures were made"), "purposeful misrepresentation of underlying collateral," deflecting blame towards AIG and big banks, and other acts of misdirection:

Misdirection to distract attention from the key complicity of GSEs in the crisis. Misdirection to deflect scrutiny away from the political personalities from both sides of the aisle responsible. Misdirection to conceal what could only be described as the most damaging acts of accounting and securities fraud in the history of accounting, securities or fraud.

In summary, the article claims that:

1. The sins committed by AIG, big banks, et al., were done in public view;

2. the sins of the government agencies (Fannie and Freddy) are being hidden from the public through misdirection and outright fraud (according to Pinto);

3. the sins of the government are causing far greater problems for the economy and represent a continuing, unending problem (e.g., "...the policies (or policy malfeasance) of Fannie and Freddie, and not the actions of large banks or firms like AIG are the proximate cause of not just the credit crisis..." and "...the continuing multi-act, multi-bailout farce that continues to be passed off to the public as necessary 'stimulus.'" and "...how can it be anything other than insanity to expect any result from these entities other than the formation (or expansion) of a ravenous fiscal black hole?" and "...supporting housing prices at any cost (to the taxpayer via endless bailouts and unlimited credit)...")

The article is called "Origins of an American Kleptocracy" (i.e., government by thieves).

So, Cursive, you still want to keep your eyes shut regarding what's going on in the government?

Sat, 01/02/2010 - 10:27 | 180490 ghostfaceinvestah
ghostfaceinvestah's picture

Agreed.  It blows me away that going into 2010 that Fannie and Freddie have still not reformed.

And the stupid US public of course has no clue that the lack of reform at Fannie and Freddie has lead directly to higher energy prices:

-No real market for Fannie and Freddie paper because they are a fucking mess

-Bernanke the Enabler steps in to become THE ONLY market for their paper, thus enabling the Administration to avoid making a decision on their fate.

-Dollar printing destroys the currency and leads to higher prices at the pump.

A perfect crime.

Sat, 01/02/2010 - 12:41 | 180563 Cursive
Cursive's picture

@ghost

Agreed.  It blows me away that going into 2010 that Fannie and Freddie have still not reformed.

Fannie and Freddie, like much of the FIRE complex, are coffers for those with political ambitions.  Goldman Sachs was the biggest contributor to the Obama campaign.  They were also one of McCain's biggest contributors.  The financial lobby is extraordinarily power and there are no large, similarly positioned lobbying groups to oppose them.

-Bernanke the Enabler steps in to become THE ONLY market for their paper, thus enabling the Administration to avoid making a decision on their fate.

The Obama administration and the FBR have been very open about their desire to buttress home prices to avoid the bankruptcy of the American "homeowner."  I agree that there is not real market for Fan or Fred paper.  The Ponzi has reached the point of no return.  The FBR has been buying time with all of these measures, but they will fail.  I agree it is the perfect crime, my only point has been that our elected officials did not conjure up this cabal of their own accord.  Ideas don't start in Washington, ideas go to Washington to transfer wealth.

Sat, 01/02/2010 - 23:44 | 180955 Anonymous
Anonymous's picture

Goldman Sachs and the rest of wallstreet were absolutely not reported to be significant contributors to McCain. The ratio was reported to be 6:1 towards Obunghole.

I'm going to google it and see if I can cite a source. I know you cannot and told a whopping lie.

Sun, 01/03/2010 - 20:59 | 181605 ghostfaceinvestah
ghostfaceinvestah's picture

You realize Fannie and Freddie are no longer allowed to lobby, don't you?

I just find it odd you mention Fannie and Freddie as coffers, and then transition to GS's contibutions, not sure I get the point in regards to my statement about Fannie and Freddie not being reformed.  It suggests they are being retained for their political contributions, which they are no longer allowed to make.

Sat, 01/02/2010 - 15:16 | 180706 masterinchancery
masterinchancery's picture

There is no such thing as federal government reform, even more so when an agency can hand out free money, and the losses are off the balance sheet.  Can anyone cite a single example?

Sat, 01/02/2010 - 12:40 | 180549 Cursive
Cursive's picture

@ reductio ad absurdum

No Cursive, you fucked up as usual.

Do we have some history or were you channeling Nurse Ratchet from "One Flew of the Cuckoo's Nest"?

 

The article is called "Origins of an American Kleptocracy" (i.e., government by thieves).

So, Cursive, you still want to keep your eyes shut regarding what's going on in the government?

You ascribe the wrong motives to me.  Were in my posts did I ever claim that the Fannie and Freddie were without blame?  Where did I absolve the legislators of culpability?  I did not.  I simply sought to refute the amazingly naive premise of the article that AIG, the ratings agencies and investment banks were clueless about the fraud within MBS and CDO's.  That view is not inconsistent with the view that there were fraudulent practices at Fan and Fred.

 

Sat, 01/02/2010 - 00:58 | 180344 Thurgy
Thurgy's picture

Cursive - Who enabled/allowed this to happen?  What political agenda was pushed by Clinton and later Bush? What is regulatory capture?  What asset bubble was directly responsible for fueling additional leverage through fictious wealth? 

Sat, 01/02/2010 - 01:20 | 180359 Cursive
Cursive's picture

Bob Rubin?  The entire GS Alumni?  Deregulation/massive K-street lobbying payments to fuel political ambitions?  Greenspan's LTCM/Y2K liquidity binge?  The whole debt-based monetary system and an unchecked, unaccountable central banking regime?

I'm not sure I understand your line of rapid fire questioning.  Originating and holding mortgages is a relatively low margin business.  However, if you add a lot of leverage, anything can become massively profitable.  Furthermore, the underwriting fees for packing this financially engineered crap are exorbitant.  Meth heads love crack and banksters love "no-risk" profits.

Sat, 01/02/2010 - 10:19 | 180478 Thurgy
Thurgy's picture

Cursive: More rapid-fire questioning

Which administrations pushed "Making Homes Affordable"?  Do homes really become affordable by giving people cheap money or does this actually make home less affordable thereby creating instabilities in the entire financial sector?  Were Americans using their home equity to bring on additional leverage (debt)?  Peel back the many layers of the onion and you will cry.  Consider how every sector unrelated to housing was directly influenced by the housing boom which only added to the instabilities of the system.

Who passed the "Modernization Act"?  Who changed the bankruptcy laws?  Who is bought and paid for?

Who "oversees the entire financial services industry, including the securities, insurance, banking, and housing industries. The Committee also oversees the work of the Federal Reserve, the United States Department of the Treasury, the U.S. Securities and Exchange Commission, and other financial services regulators."  Once you have the answer to that question then review the mission statement of said Committee with respect to housing.

Who is using the GSEs as a magic carpet in which to sweep the feces under?  Who oversees the GSEs? 

In short, placing the blame soley on the financial services industry is misguided.  I'm just as angry as the next guy when it comes to bankers but there is plenty of blame to go around.  1) Government Enabler/Entitlements 2) Banks providing liquidity for said entitlement and 3) Dumb Borrowers.  Without 1 and 3 this would be a non-issue. We have the GSEs owning or guranteeing 5T, with 1 in 5 delinquent...Do the math

Yes, bankers are a "Den of vipers and theives" but the government has run this country into the ground.  The Federal Reserve is just there to facilitate the agenda of the ruling party.  Do not blame the crack dealer for the user's addiction when the Government made it legal.  The Government are the true enablers.

 

Sat, 01/02/2010 - 11:39 | 180536 Cursive
Cursive's picture

 The Government are the true enablers.

Who is the "Government"?  From whom does the "Government" get it's power?

 The Federal Reserve is just there to facilitate the agenda of the ruling party.

What were interest rates under Bill Clinton?  What were interest rates under George W. Bush?  What are interest rates now?  Why didn't Greenspan lower interest rates in 1992 to facilitate the election of George Bush?

Sat, 01/02/2010 - 12:42 | 180591 Anonymous
Anonymous's picture

Thurgy, perhaps one of the best rebuttals I've read on ZH.

You should author boiler plate language for a bill and post it such that all of us lay-folk can cut and paste to our Congressional mis-representation.

The discussion is larger than an industry, although that industry profited at the expense of democracy. The same democracy which covered it up and allowed it to happen.

Sat, 01/02/2010 - 15:05 | 180697 dogbreath
dogbreath's picture

Yes, bankers are a "Den of vipers and theives" but the government has run this country into the ground.  The Federal Reserve is just there to facilitate the agenda of the ruling party.  Do not blame the crack dealer for the user's addiction when the Government made it legal.  The Government are the true enablers.

You say this like the government should have known better, yes they should if the bankers, fed, government, weren't all the same people. If it the governments fault then its the taxpayers responsibility.  How convenient.  

Private profits, public debt.  

 

 

Mon, 01/04/2010 - 21:19 | 182568 BoeingSpaceliner797
BoeingSpaceliner797's picture

"Let me issue and control a nation's money and I care not who writes the laws." - Mayer Amschel Rothschild

This is a telling quote by somebody who made a bundle as a banker/war profiteer.  I am guessing that Rothschild uttered this because of his experience.  I am also guessing that he knew that of which he spoke. 

Put more simply, who [lobbied to change] the bankruptcy laws?  Banks/credit card issuers.  Who issues and controls the money used to buy and pay for our bought and paid for elected "representatives?"  The Fed. 

Is it that difficult to believe that a privately owned corporation, the Federal Reserve, is actually calling the shots?  Not for me it isn't.  To each his or her own.

Sun, 01/03/2010 - 16:43 | 181384 Rick64
Rick64's picture

Who pushed that agenda through. Usually its the money behind the politicians. I will state the obvious, the politicians are just puppets with no integrity.

Sat, 01/02/2010 - 01:18 | 180356 Marla Singer
Marla Singer's picture

Let's accept for a moment your fact pattern.

1.  It's a low margin business because the government made it one.  Risk was way way way underpriced because of a government created disequilibrium.  Who isn't going to want to get into that market?

2.  Whatever AIG (since that's the horse we like to beat right now) "knew what was going on" or not, absent some showing of fraud they were doing EXACTLY what regulators and Congress wanted.  Helping GSEs avoid (among other things) their capital requirements by lowering the cost of securitization.  Selling protection on MBS and MBS CDO made everyone happy.  Why regulate?  Who doesn't like cheap housing for the needy?  In fact, the regulations were custom tailored to pull risk out of the mortgage pools and dump it on the GSEs and (by proxy) the government.  These were built to get Wall Street involved.  Duh.  There simply wasn't enough tax payer money to steal to manipulate the market without Wall Street buying.  That was the point because Fannie and Freddie simply couldn't legally hold anymore on their balance sheets (even after years of consecutive increases).  Do you even bother to look this stuff up or did someone just tell you what to think on this topic?

3.  Powerful financial firms, as well as you and me are "constantly trying to escape the regulatory structure" every day of our lives.  If you want to change that reform the regulatory structure.

4.  Chuck Prince is hardly the source to cite on anything, nor should a single quote from a single market actor be of much relevance here.  But then, it makes for sexy copy I suppose.

5.  Why would S&P Fitch or Moody's want to write anything like I penned?  They are obviously a significant part of the problem.  Still, who is it, do you think, that wrote lower cap requirements in for assets that were rated high enough by the ratings firms?  Lloyd Blankfein?  Please.

Sat, 01/02/2010 - 01:34 | 180368 Anonymous
Anonymous's picture

We now think that the analysis leading commentators to focus blame on these entities is fatally flawed.

We now think that the analysis leading commentators to focus blame _only_ on these entities is fatally flawed.

Sat, 01/02/2010 - 01:39 | 180369 Cursive
Cursive's picture

1.)  OK.

2.) "These were built to get Wall Street involved."  I wouldn't credit any rep or Senator for coming up with these ideas on his/her own.  Lobbyists wrote the regulations.  Again, why did we repeal Glass-Steagall?

3.) Are we arguing?  Because you sound like you're making my point.  Banking interests did change the regulatory structure.  The "Government" didn't ram it down the collective Wall Street throat.  Why are swaps excluded from regulation?

4.) Rule #3 of Fight Club:  If Marla labels your post as "sexy copy" just smile.

5.)  I think we're (mostly) agreeing again.

I love the ZH blog and I enjoy the posts.  I'm just bowled over that a credible argument could be made that the fraud was mostly, if not entirely, with the GSE's.  However, I'm not excusing the GSE's or the legislative and regulatory enablers that have sold us out.

Sat, 01/02/2010 - 12:41 | 180588 Baron Robber
Baron Robber's picture

Your analysis is correct cursive. Obviously the government and F/F were complicit in the entire debacle and debating the degree to which the government vs the oligarchs on wall street were the primary cause may or may not be worthwhile. But Marla is incorrect, fascism is the dominant force and that is what we have now (although there are elements of a kleptocracy). Maybe she's been lunching with Lloyd (or Glen Beck), but the one doing God's work doesn't give a shit about what Obama or congress wants - and he doesn't have to since he owns them. Zimbabwe Ben is just Lloyd's darth vader, doing the dirty work for him.

Sat, 01/02/2010 - 15:25 | 180718 masterinchancery
masterinchancery's picture

The point is that the banking industry, Congress, the Fed, and the GSEs were all co-conspirators in the bubble-default machine. They were easily able to control/suborn any "regulators", and they all profited from it enormously at the executive level, leaving taxpayers and shareholders to pick up the several trillion dollar bill. Sounds kind of Zimbabwe, doesn't it.

Sun, 01/03/2010 - 00:49 | 180984 faustian bargain
faustian bargain's picture

So, if you're not excusing them, why don't they get most of the blame? It's their job not to sell us out. It's not "Wall Street's" job to not lobby for influence. How hard is it for the government to just live according to the Constitution? Why did they set up this system whereby there's a constant flow of money into campaign coffers, as well as a steady supply of dollars for seemingly every government spending program ever dreamt up? Because that's the way they want it.

Apparently that Constitution document is just too inconvenient, and Goldman Sachs makes it so hard for them to do their jobs. Wahh.

Sun, 01/03/2010 - 16:59 | 181396 Rick64
Rick64's picture

2,3 Excellent point. Back in the 90s Brooksley Born ran the CFTC and tried to regulate the derivitives market and was effectively shut down by big banks going to the fed and the treasury and complaining. The derivitives market was 20 something trillion then. Now it is 600 trillion. The senate questioned her and asked her why she was doing this, her answer "to protect the taxpayers money" the senates answer :you will create chaos in the markets and dire consequences. At that time they didn't even know what a derivitive was. My reference for this story is FRONTLINE: The Warning.

Sun, 01/03/2010 - 13:25 | 181179 Anonymous
Anonymous's picture

Marla wrote "Do you even bother to look this stuff up or did someone just tell you what to think on this topic?"

Sorry, some of us forget that you are here to tell us what to think.

"4. Chuck Prince is hardly the source to cite on anything, nor should a single quote from a single market actor be of much relevance here. But then, it makes for sexy copy I suppose."

This from the person who made Edward Pinto the sexy hero of her piece.

Sat, 01/02/2010 - 02:09 | 180375 merehuman
merehuman's picture

Dear ones, perhaps its advisable to consider F+F are only one aspect of the undertaking of the USA. Criminality is evidenced in MANY directions, Regulators and more are beyond incompetent and cowardly. I can not help but see a concerted plan. All or most countries have central banks,fiat currency and probably someone from CFR, Jewish or from goldman sachs. These 3 things tie together in financial leadership for sure. There is much more going wrong than fred and fannie.  How come so many countries have these things in common and all at the default gate around same time?

Just coincidence?? Ha ha. If we are going to save our country, assuming it can be done, it wont get done by these crooks in charge now!

Until we have honesty, and fall on our ass, we wont be able to get up.

To arrive at honesty, since they are bought out , we need the nation behind us.

So lets inform the nation...well thought out fliers, simple , to the point

Utube the info. But lets do more than complain, guess the future or pin blame without jailing them.

Sun, 01/03/2010 - 01:21 | 181002 Anonymous
Anonymous's picture

Thanks Cursive

I really thought ZH was above getting into partisan politics. While this article makes some salient points or some would say half truths, where it absolutely falls off the cliff is when it attempts to absolve everyone else involved of this of any blame. The very same companies that have been under the ZH microscope for as many months as I lurked and then signed up and presumably before too.


Then bring in the CRA which conventional wisdom on the right, passed by the Email only News Agency "Fwd. Send this to everyone you know" claimed that the CRA was the rhyme and reason for the financial meltdown as congress forced bankers, against their will, to make loans to people who wouldn't pay them back"


On many well trafficked financial sites , I asked if anyone had any proof whatsoever from a banker that they were forced to make loans beneath their lending standards via the use of negative consequences by the govt if they didn't ( Loan the money or we shoot the dog).


It was somewhat amusing when bankers replied that no one had ever threatened them with adverse actions if they didn't make loans to poor people. Not one iota of proof has ever been presented that any banker was forced to make loans to people as a result of Govt pressure. This would have been all over the the Internet with documents, secret recordings of govt officials threatening bankers. Nope, nada. Instead we get "take my word for it and look at all this acts. As proof a whole slew of ominous sounding acts were listed by Marla . This one in particular caught my eye since there was something more than just a headline or a small nondescript teaser.



The Home Mortgage Overcharge Prevention Act of 1989: To amend the National Housing Act to limit the amount of interest paid by a home buyer upon the prepayment of a mortgage insured under the Department of Housing and Urban Development single-family mortgage insurance program



(my emphasis) This certain is proof positive. God the nerve of someone prepaying a loan. That certainly would go a long way to defining what happened. If I had the time and the desire to go through each of the acts listed, I have no doubt that I would find anything in any of them that would have been the foundation of this crisis. No skilled writer I have known with anything but a political agenda would have put up an article absolving everyone but the politician, notably the democrats and the GSEs for a world-wide financial nuke.


The oft stated cause of the entire mess as seen through the lens of the political writers is the CRA and it's iterations. The purpose of the CRA, was just to get the banks to just consider people in a zip code. This was before FICO, when a zip code acted as a automatic dis-qualifier. Imagine that. You live in the wrong zip code and work three jobs, save 25% down, score a 28% of housing cost to BTI and get turned down . You can't even make an application. No there was no need for that act.


There were many loan officers who were threatened for not meeting quotas on sub-prime loans , If they rejected loans that were put through they were in danger of losing their jobs. This was how all the McMansions got sold to Hairdressers. Make the payment lower than the rent to lure them in and then unload the loan as fast as possible. It wasn't the govt though. It was CEOs who had to show progressively better earnings to get their 100s of million in stock options in the money.


The mortgages weren't sold to Fannie and Freddie. They were bundled and Handled by Lehman, Goldman, Morgan Stanley and Merrill , sent to the ratings agencies to get a triple AAA blessing sans the underlying loan tape , and were sold with big grins by the institutional salesmen , while their trading desk would short the banks and lay in multiple CDSs on synthetic CDOs. Holy shit, talk about multiple revenue streams. Oh hell no, that was just business. What the GSEs did was CRIMINAL. Criminal I tell ya. Those poor misunderstood bankers. It was the politicians.


So AIG had nothing to do with this?. Those 500 Billion in CDSs sold were to who? Fannie and Freddie? Goldman Sachs had nothing to do with it nor the ratings agencies that helping them Candy Coat and Wrap turds with the AAA brand to sell to pension funds as Goldman Sachs shorted the securities.


That article was a partisan hit piece. There was wrong doing all over and definitely people should be going to jail from the GSEs to Wall Street which I would include the investment banks, the brokerages, Insurance companies and the Bank Holding Companies .


As far as the GSEs getting lower interest rates. If a business generates a large enough volume they generally get the lowest price as it lowers administrative cost In the regular world of business it takes as much time and effort to process a million dollars in business as it does 10 million. So big business get better prices. This has been a feature of capitalism for as long as I can remember. I also know that the big businesses had significantly higher overhead and sometimes required that discount to stay in business. Of course that principal wouldn't apply here would it? Not when there was a chance for some to use this crappy article as a sledge hammer to hit selected politicians over the head.


If this was the cause of all out ills, why not no mention of the fact that The GOP had complete control for 6 years and controlled congress for 12 years. They not only did nothing, they took all regulatory controls off predatory lending. It's interesting to note that most of the initial bad mortgages that started this snowball rolling were initiated in 2004-2006. What percentage of these were sold to the GSEs by mortgage companies that spewed lies all over the paperwork? Hell they did that to get them through their own computers.


This article and the reaction is not worthy of this place. When emotion and animosity cloud the facts then it stops becoming a source for news that goes deep.


The fact is greed had and has overtaken the entire financial system. Where we the people fell down was not carrying pitchforks to DC for bailing the fuckers out and they are still bailing them out. If the numbers I have seen are close to correct. That TARP repayment was like a person paying down his credit cart to get his credit score up so they could get something special. So what if they raised the money by hocking the family jewels at the Pawnshop?"


The bankers will be borrowing again in far bigger numbers. I would venture to say in unsupportable numbers. Take the trillions that have already been used and see what percentage of them have gone to the GSEs. Go ahead and put up a chart, there are plenty around. Then what angle does the writer of the original piece and those that supported that garbage take? The Govt forced them to lie to pension funds on CDOs?


Once you do that, take the total allocated and the projected amount they are going to need when dip 2 of 22 occurs, then divide it by 60K and divide again by a business cycle of 8 years and see how many jobs you come up with. That should be enough evidence right there that some serious weight was thrown in DC , not just by the GSEs but by the ABA and individual TBTFs


This article was not fitting for this place. Total Disappointment.

Sun, 01/03/2010 - 02:19 | 181022 Marla Singer
Marla Singer's picture

Thanks Cursive

I really thought ZH was above getting into partisan politics. While this article makes some salient points or some would say half truths, where it absolutely falls off the cliff is when it attempts to absolve everyone else involved of this of any blame.

Between "partisan politics" and "absolve everyone else involved of [sic] this of any blame" it was rather clear that you had been reading something entirely different than what I wrote, so I stopped reading your comment right there.

Sun, 01/03/2010 - 13:17 | 181174 Anonymous
Anonymous's picture

How close minded of you.

Mon, 01/04/2010 - 01:25 | 181787 Dburn
Dburn's picture

Such a long comment too. That's funny. I stopped reading yours when I hit this line of crap:

 

We have seen no credible data that any of the large banks or other underwriters of mortgage backed securities ("MBSs") or collaterized debt obligations ("CDOs") or firms like AIG selling protection on same actually misrepresented the character of underlying collateral.

Tue, 01/05/2010 - 13:53 | 183143 Anonymous
Anonymous's picture

"We now think that the analysis leading commentators to focus blame on these entities is fatally flawed."

Perhaps you meant "focus ALL blame on these entities" or "focus blame EXCLUSIVELY on these entities" but as you wrote it his statement of "absolve everyone else involved of [sic] this of any blame" seems a fairly accurate description of what you have written.

You have said that it was wrong that they were the focus of blame... ie they are blameless.

Sat, 01/02/2010 - 00:25 | 180322 Anonymous
Anonymous's picture

Where is the class action lawsuit, can there be one for this fraud?

Sat, 01/02/2010 - 00:32 | 180329 Miyagi_san
Miyagi_san's picture

Barney says Fran/Fred are financially sound...Schumer likes what he sees too

http://www.youtube.com/watch?v=VgctSIL8Lhs&feature=player_embedded

Sat, 01/02/2010 - 00:52 | 180342 RobotTrader
RobotTrader's picture

Heh!!!

I made my fortune already!!!

 

Sat, 01/02/2010 - 10:47 | 180502 Sqworl
Sqworl's picture

Add Rahm and Janet Reno to the list of millionaires...and one murder!

Sat, 01/02/2010 - 00:54 | 180343 nobita
nobita's picture

beautiful piece, when will i be able to donate without using paypal?

Sat, 01/02/2010 - 19:08 | 180833 Tethys
Tethys's picture

+1

Sat, 01/02/2010 - 01:07 | 180349 Anonymous
Anonymous's picture

'First, that the GSEs had substantial influence over the mortgage market.'

There is no mortgage market without the GSE's, Period. No bank anywhere is going to write a 30 year loan without knowing that they can sell it if they have to, and at what price they are going to sell it.

5 years is the height of bank financing.

F and F are full of scams for sure, but I hope people who are in homes now realize that without F&F your house is worth 20% of what it is now, tops. Try to find a buyer with 200-300-400k cash, or the ability to pay it back over 5 years.

Sat, 01/02/2010 - 10:31 | 180493 ghostfaceinvestah
ghostfaceinvestah's picture

You do realize every other developed country in the world has a functioning housing finance system without monsters like Fannie and Freddie?

Sat, 01/02/2010 - 10:43 | 180498 mikla
mikla's picture

F and F are full of scams for sure, but I hope people who are in homes now realize that without F&F your house is worth 20% of what it is now, tops.

Ah, for the good old days!  Yes, that would be GREAT. (no sarcasm)

Families would only need to pay some $40K-$50K for a house, and they'd have it paid off in no time.

A car is a depreciating asset, and somehow you can borrow $40K-$50K for a CAR.

Please, Dear Lord, tell the government to stop "helping" us!

The same case can be made for education and healthcare (government subsidies make it *vastly* more expensive because it merely mis-prices value and risk).

 

Sat, 01/02/2010 - 15:29 | 180720 masterinchancery
masterinchancery's picture

Before F and F took over the market, many banks in our area not only wrote 30 year mortgages, they often kept them because the loans were good quality.

Sun, 01/03/2010 - 02:55 | 181028 Howard_Beale
Howard_Beale's picture

And the tooth fairy came even when you needed a root canal. You are delusional about what the banks are doing.They sell the loans. It's that simple.

Sat, 01/02/2010 - 01:12 | 180352 Anonymous
Anonymous's picture

They got balls.... and they're using them.
The public has no balls... everyone wants to keep their job.

Sat, 01/02/2010 - 01:19 | 180358 Anonymous
Anonymous's picture

I am ill. After the Tyler's little article on unemployment numbers, now this!

When does the armed revolution start?

These articles today are truley "earth shaking", and the entire government experiment of progressivism has codified itself in the 4th branch controling the economy.

The largest scam in the history of the world.

And the Lamestreamers and CNBC and CNN and the rest, ..Yawn away.

Can this be overturned and dismantled, or will this take armed insurrection?

Sat, 01/02/2010 - 19:37 | 180847 Tethys
Tethys's picture

I have to admit that increasing feelings of frustration, augmented by many of the recent articles on ZH, have left me feeling envious of those who took the blue pill or have not yet been given the choice.

I very much appreciate the work done by Marla and the Durdens, and the contributions of those who post comments on this site. Even (especially?) those who bring a contrarian viewpoint to the posted item - having both sides presented is critical to forming an opinion.

In my view, the root of the problem is the media.  Issues such as those covered in this post should be foremost in the minds of Americans.  They are not because the means for bringing these concepts to light for the majority of Americans, the media, has split into political camps - FOX & talk radio vs. CNN, MSNBC, NPR, NYT, etc. (or they are beholden to various industries who benefit from the status quo).  In either case, since both parties are guilty, it is not in their interest to bring these issues to light.

To that extent, the internet and sites like ZH can be the antidote - albeit in the future since many fewer people frequent such sites than get their 'news' from the MSM.

This gives me some hope.  A quote that comes to mind is along the lines of "if you think you are too small to make a difference, try going to sleep with a mosquito in the room".  But I also realize that if this mosquito becomes too annoying, a great effort will be put into place to 'squash' it.  

Armed insurrection?  Only if you like suffering, starvation, rampant crime and all that comes along with the ensuing chaos.  It may come down that way in the end.  I prefer to think (hope?) that a patient approach, starting with dissemination of information, shining light on the cockroaches, so to speak, is the way to go.  What led to current events incorporates the darker side of human nature, and has taken many years to unfold.  It will take many years to fix, however it finally comes down.

 

Sat, 01/02/2010 - 01:26 | 180365 Anonymous
Anonymous's picture

What about the dead (acting) CFO at Freddie, David Kellermann ?

Think he got a little down about the fraud and decided to end it all ?

Was he dreading the FBI interviews.... anyone got any ideas ?

I mean if he could have just hung on......a little longer...6 mil....nice

Sat, 01/02/2010 - 01:42 | 180370 Anonymous
Anonymous's picture

I've often wondered what it meant to be one step ahead of the pack--this clarifies it for me--I'm missing a direct line:
Neel Kashkari’s Quiet Path to Pimco

Several former Treasury officials said Mr. Gross had frequently been in touch with Mr. Kashkari and others in government about various initiatives. None of those officials or others suggested there was anything improper about those contacts.

“Gross was one of those guys, along with Warren Buffett, who were really interested in trying to give us ideas and be helpful in resolving the crisis,” said Robert F. Hoyt, a former Treasury Department general counsel under Mr. Paulson. “They would send memos to Treasury. They weren’t ideas we ended up implementing, but they were interesting.”

It was also hard, however, not to notice that Pimco was a direct beneficiary of the Treasury Department’s actions. In 2008, when it appeared that Fannie Mae and Freddie Mac might fail, Mr. Gross saw an opportunity.

He moved Pimco’s flagship Total Return Fund heavily into mortgage-backed securities guaranteed by the two agencies. Then he vociferously advocated for the government to rescue them during television appearances on CNBC and elsewhere. On Sept. 7, 2008, the fund’s value soared by $1.7 billion when Mr. Paulson announced the government takeover of Fannie Mae and Freddie Mac. As part of his government duties, Mr. Kashkari worked on that rescue effort.

http://tinyurl.com/yevmh9s

Sat, 01/02/2010 - 04:09 | 180396 tom a taxpayer
tom a taxpayer's picture

Robert Hoyt was consigliere to U.S. Treasury Secretary and Goldman Sachs benefactor Hank Paulson:

 

“It’s ridiculous that I can’t deal with Goldman at a time like this!” Paulson complained to his general counsel, Bob Hoyt. It was September 17, 2008, just two days after Lehman Brothers collapsed and less the 24 hours after AIG was rescued with $85 billion. Paulson thought Goldman could be next..."

"Within an hour, the waiver was granted. At the time, however, the waiver was not disclosed to the public, in part, out of fear it would raise more questions about the government’s actions and perhaps lead to a bank run on Goldman."

Excerpt from Sorkin's Too Big to Fail.

http://www.andrewrosssorkin.com/?p=174

Sat, 01/02/2010 - 04:55 | 180406 tom a taxpayer
tom a taxpayer's picture

As for Mr. Kashkari's post-U.S. Treasury-employment at PIMCO, there are statutory prohibitions on post-federal-employment involving conflict of interest. These are criminal statutes regarding post employment conflict of interest: 

 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&doc...

 

Mr. Robert Steel, another Goldman Sachs/U.S. Treasury sidekick of Hank "the mole" Paulson, waltzed from the U.S. Treasury to president and CEO of Wachovia. He too may find it worthwhile to read these criminal statutes regarding post employment conflict of interest.

 

Oh, while they are at it, Mr. Kashkari and Mr. Steel might also look up the criminal statutes on conflict of interest applicable during federal employment. 

Sat, 01/02/2010 - 13:33 | 180624 Anonymous
Anonymous's picture

Interestingly enough, Kashkari has "checked out"
and is currently building a shed!
http://www.newworldorderreport.com/Articles/tabid/266/ID/351/Bailout-poi...

Which is exactly what I did, just other coast.
Years of frustratation and sleepless nights are over
Physical Labor is a nice change, unlocks the jaw...
which stops the headaches

Sun, 01/03/2010 - 01:23 | 181004 tom a taxpayer
tom a taxpayer's picture

 

Mr. Kashkari has finished recharging his animal spirits, chopping wood and building a shed in the Sierras. This was well-deserved vacation. Kashkari was exhausted from handing out billions of dollars in taxpayers money to his former employer Goldman Sachs and to many big bankers who are going through some rough times.

Mr. Kashkari started work at PIMCO on Dec 14.

And of course, Mr. Kashkari's contacts with Mr. Gross or PIMCO (his future employer) were completely above board, not the slightest hint or appearance of conflict of interest, let alone actual criminal conflict of interest. It must be true...the NY Times says so: 

"Several former Treasury officials said Mr. Gross had frequently been in touch with Mr. Kashkari and others in government about various initiatives. None of those officials or others suggested there was anything improper about those contacts."

“Gross was one of those guys, along with Warren Buffett, who were really interested in trying to give us ideas and be helpful in resolving the crisis,” said Robert F. Hoyt, a former Treasury Department general counsel under Mr. Paulson. “They would send memos to Treasury. They weren’t ideas we ended up implementing, but they were interesting.”

"It was also hard, however, not to notice that Pimco was a direct beneficiary of the Treasury Department’s actions. In 2008, when it appeared that Fannie Mae and Freddie Mac might fail, Mr. Gross saw an opportunity."

"He moved Pimco’s flagship Total Return Fund heavily into mortgage-backed securities guaranteed by the two agencies. Then he vociferously advocated for the government to rescue them during television appearances on CNBC and elsewhere. On Sept. 7, 2008, the fund’s value soared by $1.7 billion when Mr. Paulson announced the government takeover of Fannie Mae and Freddie Mac. As part of his government duties, Mr. Kashkari worked on that rescue effort."

http://www.nytimes.com/2010/01/01/business/economy/01kashkari.html

 

Sat, 01/02/2010 - 01:44 | 180371 Anonymous
Anonymous's picture

Bear Stearns a "victim"...

Boy you gotta question the motivation of an essay where BS is labeled as a victim.

So are the GSEs to blame for all the subprime commercial real estate loans that WallStreet has created in the past 5 years?

I'm just saying....

Sat, 01/02/2010 - 02:38 | 180379 Quantum Nucleonics
Quantum Nucleonics's picture

Many seem to have missed the real development in the Christmas Day Fannie/Freddie announcement.  Yea, they lifted the $400 billion cap on loans from the Treasury.  However, more importantly the Treasury also eased a requirement that Fannie and Freddie begin shrinking their loan portfolios.  If you were wondering who is going to be buying all those MBS tranches at a premium after the Fed steps aside in March...  Fannie and Freddie will pick up for the Fed.  Without the portfolio size requirements they take over from the Fed providing the bid for every MBS, and without a loan cap they have an unlimited credit line from the Treasury.  Since Fannie & Freddie are still technically off the Treasury's balance sheet, but shareholders wiped out and indifferent to losses, it will be too late before the general public notices the massive losses on this new loan portfolio.

Sat, 01/02/2010 - 04:08 | 180395 drwells
drwells's picture

Yep. The Fed can go back to monetizing the tidal wave of Treasury garbage ahead. This of course will be attributed to "households" or some other nonsense entity that, as usual, no one except the "crackpots" will bother to investigate. Gold, of course, will not lie, so they'll have to promulgate some other fictitious reason for its meteoric rise, or else just ban it "to protect American citizens from the dangers of speculation" a la Vietnam.

 

Housing crash is probably over in nominal terms. A few more years and the bulls will be celebrating their "gains" while suffering real losses and the sharply lower standard of living that tends to accompany galloping inflation and government price fixing.

Sun, 01/03/2010 - 16:28 | 181371 ATG
ATG's picture

Gold bugs don't like government, yet

they believe its empty promises to

indefinitely inflate the economy...

http://www.jubileeprosperity.com/

 

Sat, 01/02/2010 - 04:37 | 180403 Gwaihir
Gwaihir's picture

Spot-on. This is about bailing out the Fed. Have a look at their balance sheet. Also, the GSE can buy the underlying credits back at par eg the worthless CDOs will not get triggered. Another brilliant move ignored by the tax-paying sheeples.

 

Sun, 01/03/2010 - 16:29 | 181374 ATG
ATG's picture

Market will see through this...

Sat, 01/02/2010 - 09:26 | 180467 BoeingSpaceliner797
BoeingSpaceliner797's picture

" . . . and without a loan cap they have an unlimited credit line from the Treasury."

 

I will admit to not having read the legislation which imposed the $400 billion cap on the credit line from Treasury so I do not know what legalese is in that legislation.  That said, it would appear that this move is unconstitutional on at least two levels.  First, I believe that appropriations of our money are not allowed to be blank checks.  Second, but far more importantly, appropriations bills/actions are required to originate in the House of Representatives, not the Executive branch. 

 

Hey, I'm probably dead wrong.  If I'm not, the Constitution is just a piece of paper, right?

Sat, 01/02/2010 - 15:45 | 180727 Anonymous
Anonymous's picture

"That said, it would appear that this move is unconstitutional on at least two levels."

It is pointless to state something as "unconstitutional", as if that has some powerful meaning in this day and age.

Sat, 01/02/2010 - 10:37 | 180495 ghostfaceinvestah
ghostfaceinvestah's picture

No doubt that was the true motivation - that announcement was all about supporting GSE paper.  My bet is Bernanke realizes he is getting a lot of heat in Congress due to his continuing QE programs and has said there is no way he is going to continue MBS buying.

Knowing this, and knowing the MBS market will implode without the Fed, the Admin is scrambling for another solution.

I don't think it is going to work.  The Fed is 70% of the MBS market today (yes, even with the lower purchasing, as issuance has declined in line with the reduced purchases).  Even with the increased portfolio room, the GSEs don't have enough firepower.

Sat, 01/02/2010 - 12:19 | 180570 Ned Zeppelin
Ned Zeppelin's picture

That's my opinion as well. The early 2010 cessation of the Fed's purchase of GSE debt creates an enormous "output" problem since where do you put all of the crappy mortgages they are still funding? Well, as we found out Christmas Eve, if you can't move them out via sales, you have to hold them as inventory. Hence my description of GSEs as rapidly bloating ticks in 2010. The GSE mortgage debt warehouse will be chock full come spring.  The supply blossoms, the demand, non-existent. It is still a form of QE. Money printed for the sole purpose of propping up housing prices, lest insolvency officially and overtly arrive.

Be aware that in the current residential mortgage market, unlike just a few years ago, all of the mortgages are federally insured or guaranteed. Banks are not making loans to hold (OK, maybe a community bank here or there, but not nearly enough to prop up the hoousing market) and there is no private securitization market (nor will there be anytime soon). Right now, if you took away GSE debt, the values of residential real estate assets would plummet for lack of buyers - demand would collapse in the face of super-abundant supply.

I respectfully disagree with one of Marla's observations above about loan quality - I do not believe for a minute that those packaging loans into private CMBSs did not have an acute awareness of the crap they were shoveling; to put a fine point on it, they may not have actively misrepresented it, but certainly failed to disclose it, which is the same.  The private MBSs were just as bad as anything the GSEs cooked up.

Also, there is still a missing data point. GSEs did this on their own as out-of control rogues, as some sort of reckless social experiment? Please. Follow the money - who benefited from a decades long, government subsidized, tax code encouraged, post WW II flourishing GSE mortgage market supporting endless subdivisions and strip malls? Who made the money? Gee, wasn't that all of us? Houses, cars, furniture, tvs, carpets, lawncare product, Rubbermaid, Tupperware, paint, heaters, trucks, suvs, etc. etc. etc.  markets all predicated on building the project of American suburban sprawl.  I think if you want to figure out who done it, go look in the mirror. 

Sat, 01/02/2010 - 03:15 | 180384 Stevm30
Stevm30's picture

Marla - one thing you forgot that I loved during the first Freddie/Fannie bailout: They were using millions of bailout money for lobbying!  Are you serious?  Who are you lobbying for with taxpayers dollars?  The government is lobbying for itself!  How incestuous. Is the metaphor "cancer" excessive?

Of course Demint nailed it early: http://online.wsj.com/article/SB121806932316918855.html

"We have every right to defend ourselves and advocate for our positions, particularly since we play such a critical role in housing finance" 

Fuck you. That's my money.  You have no "right" to use it to defend YOURSELF motherfucker.

Sat, 01/02/2010 - 04:04 | 180392 Pike Bishop
Pike Bishop's picture

I spent 3 months on this. It wasn't the amount of money, it was the rolodex on the chief's desk. They were the best of the best names, for every possible occassion.

They had a stick, too. For WTF did they need offices all across the country?

They made it clear that they wouldn't stand for negative meddling by Congress, they further made it clear you didn't touch foot on their turf.

How?

Ok, you're a Congressman who wants them to use yellow post-its instead of blue ones. Somehow you get it on a committee docket.

That night your wife calls you. The Fannie guy is in your district on the local news with a spot right after the bleed that leads....

"Today, Congressman Soon-to-be-called-chit has authored a Bill which will make it much more difficult for us to continue to help provide the American Dream to all deserving Americans. It will also be another nick out of the tools we have been using for 70 yrs, to get people who have had a little bad luck, and need a little help getting over the hump and into a modest home. Where they have a chance to raise their family with less uncertainty and more love."

If your political advisor tells you to take this guy on for a couple news cycles.. fire him. And after you finish the phone call with your caucus boss, if you still have any ass left, sit down and call the committee secretary and explain how your request for scheduling was a misunderstanding by your staff."

edit; I forgot. That guy from Fannie will note every penny which The Fannie Foundation has granted in your state. You will also get phone calls from the Directors of State family Services, Mothers Fighting Cancer, Hope for Hungry Children. Check out the grants, they will total 7-8 figure amounts.

 

 

 

Sun, 01/03/2010 - 16:03 | 181343 Gilgamesh
Gilgamesh's picture

A quick read into Congressman Paul Ryan and Fannie/Freddie characters a while back supports this.  I consider it a small miracle that Mr. Ryan is still around, never mind thriving.  It is sickening what they pulled against him.

Sat, 01/02/2010 - 04:15 | 180398 Anonymous
Anonymous's picture

Hey! Wow! That was really great! You sure showed them who's who and what's what.

Sat, 01/02/2010 - 07:28 | 180433 Stevm30
Stevm30's picture

Yes well I'm upset and you should be too (since it's YOUR money also dipshit)... did you actually read what I wrote?  Or were you like - "OHH tough guy!" (without thinking)

I mean, we're on the same team (unless you work for one of them)

Sun, 01/03/2010 - 16:33 | 181378 ATG
ATG's picture

Rahm Emmanuel...

Sat, 01/02/2010 - 03:22 | 180387 Pike Bishop
Pike Bishop's picture

OK. My bloodpressure is getting up a few bps. But if I'm going to sell this on Main Street, I'll need failures by origination dates or when the paper first came out of the risk pool..

It's the same thing as usual. You can't hide all of your shit off-balance sheet. If you don't mark it, the markets will punish what they can see, based on a their bedtime imagination about the stuff hiding in the closet and under the bed.

The cap raises being put out on a trash cycle, makes them a weather report. It reads like  somebody believes another storm wave coming. If the extra subsidy intercepts it... ain't nobody gonna know about it at the Starbucks, that past sins are also being swept in the  baskets on our backs. And it's a clean getaway.

So far this looks like a problem of magnitude. I get the significance of a decade of risk already awry. But it won't play for the crowd in the cheap seats, without the numbers.

 

 

Sat, 01/02/2010 - 03:54 | 180391 Fielding Mellish
Fielding Mellish's picture

Don't forget James Lockhart.  Bush classmate. Charged with regulating Fannie and Freddie.

Sat, 01/02/2010 - 04:02 | 180394 Anonymous
Anonymous's picture

And for his outstanding work performance he lands at :

How come when I screw up things don't go so well?

Lockhart Says Housing May Take ‘Another Leg Down’

James B. Lockhart III, vice chairman of WL Ross & Co. and the former director of the Federal Housing Finance Agency, said the U.S. housing decline may not be over.

http://tinyurl.com/yec776j

Sat, 01/02/2010 - 04:19 | 180400 Anonymous
Anonymous's picture

Quality story - great critic - pleasure to read

good luck

Sat, 01/02/2010 - 05:19 | 180409 Anonymous
Anonymous's picture

"We have seen no credible data that any of the large banks or other underwriters of mortgage backed securities ("MBSs") or collaterized debt obligations ("CDOs") or firms like AIG selling protection on same actually misrepresented the character of underlying collateral."

I believe Morgan Stanely is being sued right now for selling stuff that was toxic while covering themselves with AAA ratings from credit rating agencies.

Sat, 01/02/2010 - 05:23 | 180410 Apocalypse Now
Apocalypse Now's picture

Ready for some lucidity?  Tired of the inflation/deflation argument, and you just really would like to understand what is really going on?  Those that have read my comments know that for some time I have outlined this is just a take over, but I found this comment on another site that clearly outlines how.  Read it and be illuminated, here is truth:

To extort the maximum value from a population, when one has control of monetary system, leverage the laws of supply and demand. Use deflation, inflation, and hyperinflation all as tools to transfer wealth. All have a place and a purpose.

The banker's guide to owning it all

Become majority lender in an economy of people with assets you want.

Encourage indebtedness by loaning generously while securing on assets of interest.

Loosen lending standards until the assets you seek to capture are attached. (this makes the economy debt dependent)

Once debts are significant for the bulk of the population, sharply tighten lending standards. <-- Economic shock - Onset of deflation

Backstop losses with public guarantees if possible. This is gravy if one can get it. (Fannie and Freddie guarantees, for example)

Permit default 'without risk' on the assets you wish to sieze to maximize wealth transfer. (stall foreclosure, stay repossession orders etc)

Stall the economy to maximize default positions and deplete private liquidity. <-- We are here

Successively ratchet the economy downhill, while bettering secured positions.

In a series of large actions, sieze all security for default. Target the assets of greatest interest first. (This deals a heavy economic blow and can help cause the ratcheting required for step 8.)

Transfer asset ownership, but retain prior owners as renters where possible. (This reduces public lashback and helps maintain the asset for resale)

Once the bulk of assets of transferred, write them down to leverage the public financial backstop.

Buy up as many remaining assets on the cheap as possible. Hide this action.

Hyperinflate to destroy the external claims on wealth. <-- Onset of hyperinflation (This destroys treasuries, gov't bonds, currency. Ensures free title on new assets. May cause war.)

Stabilize the currency or devise a new one, resume lending at a reasonable pace. Sell the assets back, secured of course, at your chosen price in new currency.

Hyperinflation is only a risk to the wealthy if the population has the assets. Make note of that statement. It is key to timing the shift from deflation to hyperinflation.

I combined known events of the 1930s with those of other collapses and this is the model that results. Instead of positioning myself as a victim of the collapse, I positioned as the one that would profit.

The approach is reverse engineered, so it may not be entirely accurate. I expect it is close.

Ethics aside for the moment, one might consider the following in order of execution:

Eliminate secured debt.

Store preps to carry you through steps 8-13.

Secure precious metals for when the currency is collapsing. At that time, assets will become very cheap in terms of both gold and silver.

Exchange for assets while public stampedes into PMs in a panic.

If the gold price rises too high for your tastes, loan sums of cash against assets of much greater worth. Ensure you have a first on the security.

For those of limited means, directing capital can be very important. This model is deflationary while assets are transferred. It relies on limiting the panic in this period as well. From this, we can gather that accomodation is likely to remain available. Food will become a larger percentage of household spending (due to income reduction), and guns won't help against this enemy (protection will still matter though, as always). This can help prioritize where limited prep funds are spent.

For those with excess, items three and four may feel ethically questionable. Remember that private ownership of most of these assets will not survive this process with or without your involvement. Following in the footsteps of the banks directs some of their windfall to you... instead of them. I am personally comfortable with only the first three of the steps listed above. The fourth is a difficult one. I could only do that if I knew a bank was going to loan the money and complete the fleecing in my absence. But even then, I don't think I would take on the roll of aggressor.

I am bullish on both gold and silver from the point destruction of the dollar picks up momentum. For the immediate future, TPTB will jack the price all over the place to shake out the speculators. The choice to hold gold or silver must be based on market fundamentals, not the gamed valuation systems.

I am bullish on both gold and silver, but most bullish on silver. To an untrained eye, $1000 in silver looks like a LOT more than $1000 in gold. The market will soon become saturated with untrained buyers. They will be panicked and buying in haste. They won't know what to buy based on research or sound fundamentals, rather they will respond based on visual cues and heuristics. A suitcase of silver may buy a house because it looks like a lot, while the equal value in gold will not. As well, those little plastic sleeves will be big money makers. They will ensure a case filled with any PM looks more tangible. Less will become more when well packaged.

Emulating the actions of a banker would enable you to share in their spoils. It's hard to ensure you will have the dry powder to spend in step 12, and there's risk that a twist on this strategy could still come forth. But if it holds true, your suggestion would be effective.

Sat, 01/02/2010 - 08:34 | 180445 Scooby Dooby Doo
Scooby Dooby Doo's picture

I made a snowman like the Zero Hedge snowman in my front yard to see if any of my neighbors would come out of the closet and admit to their readership.

The next morning I came out and the gold bars were gone! Stolen by some gold bugs! Fucking gold bugs destroying my plans to identify you. I know you're reading.

Sat, 01/02/2010 - 08:36 | 180447 Narcolepzzzzzz
Narcolepzzzzzz's picture

Interesting post. Reminds me of 'The Royal Scam':

http://www.oftwominds.com/blogaug09/KaPoom2CHS.htm

Sat, 01/02/2010 - 12:31 | 180582 Cursive
Cursive's picture

@ Apocalypse Now

Thank you.  I think this describes the situation much better.  Our only salvation is to abolish the Federal Reserve and return control of our money to the U.S. Treasury.

Sat, 01/02/2010 - 12:35 | 180584 Anonymous
Anonymous's picture

Spot on, A_N
I originally purchased Au/Ag
so that I could pay taxes on properties,
having noted historically how folks lost
properties during hyperinflations.
Been accumulating Au/Ag for years now.
Patience is now the order of the day....

Sat, 01/02/2010 - 16:31 | 180744 Nout Wellink
Nout Wellink's picture

Hyperinflation is only a risk to the wealthy if the population has the assets. Make note of that statement. It is key to timing the shift from deflation to hyperinflation.

Very interesting posting and I know from bankers this is true. It IS a scheme of wealth redistribution. There is however one flaw: hyperinflation. You cannot control that so easily. If trust in the currency drops to zero tomorrow, there is instant hyperinflation. But of course the bankers have a loophole for that scenario: don't accept the hyperinflated currency as debt payments.

Sat, 01/02/2010 - 23:56 | 180960 Anonymous
Anonymous's picture

How can they refuse? I owe a certain number of USD. If USD hyperinflates, it's time for me to pay off the mortgage. Do you think they can refuse? It's in black and white in the contract.

Better yet, do you think a judge would let them refuse? The judges are getting more and more populist in these things.

Sun, 01/03/2010 - 05:12 | 181044 dogbreath
dogbreath's picture

brings a whole new meaning to when you say "bank heist" or should that be " central bank heist "

Sun, 01/03/2010 - 16:59 | 181397 ATG
ATG's picture

The borrower is slave to the lender.

Banking establishments are more dangerous than standing armies.

The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.

If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, and give the earnings of fifteen of these to the government for their debts and daily expenses; And the sixteen being insufficient to afford us bread, we must live, as they do now, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account; But be glad to obtain subsistence by hiring ourselves to rivet their chains around the necks of our fellow sufferers; And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second, that second for a third, and so on 'til the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering...and the forehorse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.

 

http://www.jubileeprosperity.com/

Sat, 01/02/2010 - 05:46 | 180412 Anonymous
Anonymous's picture

This is a great article - another stake in the heart of the GSE vampire. Unfortunately it refuses to die, thanks to government life support. Whether you think F+F are 20% or 80% responsible for the housing price bubble and recession, you'd have to agree their time is up. Their main purpose now is to continue to artificially inflate the housing market, which only postpones the eventual reckoning.

Sat, 01/02/2010 - 08:07 | 180439 brodix
brodix's picture

Marla,

 Nothing is without precedent. The elephant in the room for capitalism is that the law of supply and demand also applies to capital, with the lender as supply and the borrower as demand. So that the economy can only store as much notational wealth as it has the capacity for prudent lending. Above that and some form of bubble begins.

 The myth is that Volcker cured inflation by raising rates and tightening the money supply. The flaw in this logic is that higher rates benefit supply and harm demand, resulting in recession. How do you cure an oversupply of capital that way?

 At the same time Reagan was cutting taxes and increasing defense spending. Lower taxes on producers increased economic activity, while lower taxes on savers increased the money supply, so it was necessary for the Treasury to borrow as much back as possible. Just as the Fed tightened the money supply by selling debt it was holding, the Treasury was doing the same by issuing fresh debt.

 Now by the time Clinton came into office, the Soviets had collapsed and so it didn't make much sense to keep throwing money at the military and by having the GSEs doing the borrowing, they could claim to be cutting the deficit.

 The politicians and the bankers may be crooks, but they are working for us. We want lots of wealth and we don't care where it comes from, even if it's just an illusion. They are just the pushers feeding our habit.

 Until the ones at the top of the economic pile understand they have to invest in the foundations on which they rest and not just keep all the paper for themselves, the government that is responsible for maintaining the value of that paper will find other uses for the wealth denominated in it. So quit crying about reality. Facts can be obscured by bullshit, but not changed by it.

Sat, 01/02/2010 - 08:03 | 180440 Scooby Dooby Doo
Scooby Dooby Doo's picture

Now why was David Kellermann, Freddie Mac CFO suicid'ed back in April '09?

"Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A."

Note to all future CFO's; Remove all panic buttons from office or expect a visit from CIA's financial stabilization unit.

Sat, 01/02/2010 - 08:13 | 180443 Anonymous
Anonymous's picture

It was not until there was no skin in the game.....that
loaning under any premise was an issue....

If securitization had involved the fact that the originators
had to be at risk....the problem would not be as big as it is today....

However consider this....

How can there be a free economy when a high percentage of the products have a govt. label ????

Govt. and the free market have to draw a line in the sand....

One could write an effective govt. policy for this on the back of an envelope....

HERE IT IS....

ALL MORTGAGE ORIGINATORS MUST HAVE SKIN IN THE GAME OF AT LEAST 10%.....AND THEY THEMSELVES HAVE TO HAVE THE ASSETS TO BACK IT UP.....OTHERWISE....GO OUT AND HAVE FUN...

And all public products MUST trade on an efficiently run open public "direct acess" exchange....

Very truly.....this is a simple issue....as the problem was and still is passing on unwarranted risk to the non-suspecting....

Sat, 01/02/2010 - 10:44 | 180499 ghostfaceinvestah
ghostfaceinvestah's picture

Agreed.  That is where Fannie and Freddie contribute to the problem - they enable the passing off of risk.

Most people realize that loans over 80LTV sold to the GSEs require private mortgage insurance.

What most people don't know is that is not the only option written into the GSE charters.

The first option in their charters is, you guessed it, 10% participation.  That is, if an originator sells Fannie and Freddie a loan at 90LTV, they can avoid mortgage insurance if they keep 10% of the loan.

By simply eliminating the option of using mortgage insurance, we could force originators to keep a portion of the highest LTV, and thus most risky, loans they securitize.  All it would take is striking one line from the GSE charters.

Sat, 01/02/2010 - 12:31 | 180581 Ned Zeppelin
Ned Zeppelin's picture

GFI, you rock. Agree totally.  Now, if they did that, long term good ; but short term, look out below as mortgage availability shrinks to a fraction of the current pool of available funds for borrowing.  As a consequence, a much smaller pool of credit-worthy borrowers, against a background of already challenged demand in a vast ocean of supply. 

Collapse, and rippling insolvencies across the nation, as the balance sheet is reset. Game over.  

Sat, 01/02/2010 - 08:46 | 180449 Anonymous
Anonymous's picture

Another major issue is one of local origination...

This does not apply just to mortgage origination....but to
govt. in general....

Let's simplify this further....

One owns a business with lots of employees....and this
business owner is a hands on....always locally present type of manager....

Now compare this to a person who "just owns the business" and is never present....

Tell me....

Which business is most likely to be successful ????

Thus my point is this....

There should not be any mystery to govt..

Govt. should be localized by township...which in turn reports to the state....

The Fed should only serve as a cumulative focus of all the states that consolidates state mandated information only....

The lobbyist system must be done away with....as it is highly flawed....

Sat, 01/02/2010 - 10:45 | 180500 ghostfaceinvestah
ghostfaceinvestah's picture

That is what the founding fathers (at least some of them) intended.  FDR put a stake in the heart of that idea.

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