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 Post subject: Re: Well... it's finally over...
PostPosted: Wed Nov 05, 2008 2:21 pm 
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Don't get your hopes up. It's not as interesting as you think.

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 Post subject: Re: Well... it's finally over...
PostPosted: Wed Nov 05, 2008 2:58 pm 
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Anyone who didn't see the result of this election a mile away was just fooling themselves. I've said all along that I thought it was a near impossibility for the republicans to win the presidential election after George W. You can't have that many people bitter with the "leader" of the party and expect to stay in power. And when McCain was chosen as the republican candidate, it only made matters worse, he was regarded as just an extension to the Bush era, something no one wanted. Obama was the better candidate and thank goodness people realized it. Besides, we have no where to go but up from here.

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 Post subject: Re: Well... it's finally over...
PostPosted: Wed Nov 05, 2008 7:24 pm 
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So I watched the topic a little and it certainly is interesting to see some of the responses that have been posted. I always knew that there was a very diverse crowd here on WOP and I think between a couple of the threads it has held up to that theory.

I also realized that I simply posed a question without giving any input of my own... so here goes it. I am a registered republican although I am moderate in my ideology; there are certain things that I just can't fathom following party lines on. I am happy to say that my vote was cast in favor of McCain and not Obama. With that being said, Obama was clearly the better speaker and Biden was light years ahead than Palin. I know that McCain wanted the female vote but, Palin? Come on.

There were and are two things about Obama that truly scare me. Firstly, his tax plan; in all honesty, it sounds like socialism. I sincerely hope that congress has enough foresight to know that drastically increasing taxes on businesses and wealthy individuals is not good for the economy. I fully believe that this will cause more business outsourcing and a loss of American jobs. Additionally, the wealthy did not rise to their prosperity by giving away their hard earned money. I am almost positive that we will see an increase in the amount of individuals holding offshore accounts. I consider myself an honest person and even I would think about hiding my money... if I wasn't a broke college kid. :lol:

Secondly, universal health care. On the surface, this sounds like a great idea; that is... until a little thought is given. Take a look at countries that have universal health care... yeah it's free but, care can be compromised. Currently, there is motivation to be the best practitioner in order to attract patients, if the health plan is implemented this competition will disappear. Next, loss of jobs; Blue shield is one of the top 20 employers in the United States. lastly, increased wait times. Lastly, and perhaps most importantly are the wait times. As seen in Canada, wait times for a specialist can reach upwards of 4 weeks once a referral is obtained. In fact, in Saskatchewan, people have waited for 22 months for a simple MRI. (reference) (For the sake of comparison, I was able to have two on the same day 3 days after my referral.) Additionally, some reports claim that the average time from initial visitation to final procedure is over 17 weeks. So yeah, I'm against this.

With that mouthful of words being said, Obama is the new President; I am proud to call myself an American and I will do my very best to overlook some of my issues with him. However, loving one's country is different than loving one's President.

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 9:14 am 
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Actually Canadian healthcare isn't as bad as the U.S. media makes it out to be. The quality of healthcare isn't horrible, in fact, it isn't unheard of for an American to go see a Canadian doctor for surgeries. Not to mention, have you ever actually spoken with someone who has lived in Canada? They will tell you it's not bad at all. Someone who lived there explained it to me like this....: "Well, basically you get sick or hurt, you walk into the doctors office, they treat you, and you walk out and don't pay a dime." Nothing about problems with long lines. The lines that do occasionally occur in parts of Canada are due to a lack of healthcare facilities in rural areas.

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 10:33 am 
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I have literally dozens of friends who live in Canada. They are under no illusions (nor am I) that socialized medicine is a "perfect" system. It's simply that they (and I) consider the flaws of socialized medicine to be much less significant and more bearable than the flaws of capitalistic medicine. Bassoonuba, you think there aren't Americans who wait months to see specialists? I can assure you that the poor in Canada receive much better medical care than the poor in the United States. The problem with capitalized medicine is, quite simply, you get what you pay for. And individual health and welfare is one area where I think it is unjust to maintain that principle.


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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 11:01 am 
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pittech wrote:
To any inner city or downtrodden person out there, this should show that anything and everything is possible if you work at it (wait... isn’t that a CONERTIVATE value and ideal... :P ) anyways, here is to the next 4 years of change. Moreover, here is to the second coming of Regan… maybe it will be a black man.


I realize you may be a young person, and may lack experience in life, but that doesn't excuse the incredibly condescending nature of your remark above. Who are you to lecture others on overcoming misfortunes or economic disenfranchisement? And please for a minute don't think that I don't recognize phrases such as "inner city" or "downtrodden" as code words for ethnic minorities. I would invite you to consider how your conservative party has divided this country and how economic disparities have been magnified, not minimized, by supply-side policies first implemented by Reagan.

When we consider where the county was when Reagan completed his second term, with the country watching hearings regarding the Iran-Contra affair, in which private operatives within the White House were operating with the tacit approval of the political hierarchy to fund mercenary activities in Central America, and where we were shortly to confront the Saving and Loan debacle (another costly fiasco attributable to deregulation), and where the public debt exploded while government functionaries were involved in an agenda of social conservatism ("Just say no"), I wonder how far revisionist history can come that people can honestly look back to Reagan with pride. I'm sure the revisionist histories of the Bush years are not far behind.


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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 12:10 pm 
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I really wonder sometimes. I really do. I didn't serve my country to inspire socialism of any kind.

I give up sometimes. We have countless examples where govt programs fail and fail miserably. Why in the world do you want govt in control of healthcare? Did we not just have a very huge example of a failure of a democratic party program, Freddie and Fannie, that drove us into this economic mess? And we want to turn over our healthcare to the same people who screwed that up, screwed up social security. Look at our public schools. That's another example. These are now the same people who are now wanting to take our 401K's away.

What next???

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 1:43 pm 
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Your statement oversimplifies and is largely disingenuous.

crfrey71 wrote:
I give up sometimes. We have countless examples where govt programs fail and fail miserably. Why in the world do you want govt in control of healthcare?

Do government programs fail due to flaws in concept (rarely) or flaws in execution (more common)? Just because the government mismanages a program does NOT mean the program is a bad idea or flawed in design. Yes, I think socialized medicine is a good idea. Yes, I agree that government overhaul would be needed to make it effective/efficient.

crfrey71 wrote:
Did we not just have a very huge example of a failure of a democratic party program, Freddie and Fannie, that drove us into this economic mess? And we want to turn over our healthcare to the same people who screwed that up

The Federal National Mortgage Association (FNMA, or "Fannie Mae") was founded in 1938 as part of FDR's "New Deal," but became a stockholder-owned company in 1968. A lot of people are missing this point: Fannie Mae, AIG, and all the other companies failed because of capitalistic greed. They took on riskier and riskier debts in order to maintain record profits and appease shareholders. Fannie Mae, pre-takeover, was *NOT* funded or backed by the U.S. government.

So, actually, you're wrong: this was not a case of bureaucratic mismanagement. Ironically, in fact, you have things backward: the Fannie/Freddie debacle was a case of capitalism failing and the rescue coming in the form of socialism (government takeover).

Finally, our health-care industry is ALREADY in the hands of the same people responsible for the current economic mess: greedy capitalists pursuing greater and greater profitability at the expense of other people regardless of the risk. And the problems with our health care system extend beyond our borders.

http://www.reuters.com/article/healthNews/idUSN0343703420071203

http://www.cnn.com/HEALTH/blogs/paging.dr.gupta/2008/01/dying-for-lack-of-insurance.html

http://www.guardian.co.uk/society/2006/nov/14/internationalaidanddevelopment.medicineandhealth


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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 2:01 pm 
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Gonzofoto wrote:
pittech wrote:
To any inner city or downtrodden person out there, this should show that anything and everything is possible if you work at it (wait... isn’t that a CONERTIVATE value and ideal... :P ) anyways, here is to the next 4 years of change. Moreover, here is to the second coming of Regan… maybe it will be a black man.


I realize you may be a young person, and may lack experience in life, but that doesn't excuse the incredibly condescending nature of your remark above. Who are you to lecture others on overcoming misfortunes or economic disenfranchisement? And please for a minute don't think that I don't recognize phrases such as "inner city" or "downtrodden" as code words for ethnic minorities. I would invite you to consider how your conservative party has divided this country and how economic disparities have been magnified, not minimized, by supply-side policies first implemented by Reagan.

When we consider where the county was when Reagan completed his second term, with the country watching hearings regarding the Iran-Contra affair, in which private operatives within the White House were operating with the tacit approval of the political hierarchy to fund mercenary activities in Central America, and where we were shortly to confront the Saving and Loan debacle (another costly fiasco attributable to deregulation), and where the public debt exploded while government functionaries were involved in an agenda of social conservatism ("Just say no"), I wonder how far revisionist history can come that people can honestly look back to Reagan with pride. I'm sure the revisionist histories of the Bush years are not far behind.



Well now... please see your PM box sir.

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 4:11 pm 
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Hostrauser wrote:
Fannie Mae, pre-takeover, was *NOT* funded or backed by the U.S. government.

So, actually, you're wrong: this was not a case of bureaucratic mismanagement. Ironically, in fact, you have things backward: the Fannie/Freddie debacle was a case of capitalism failing and the rescue coming in the form of socialism (government takeover).


WRONG, WRONG, WRONG!!! It is govt sponsored! The govt had everything to do with it's failure. Barney Frank, Chris Dodd, Barack Obama, Clinton, and also some republicans. They pressured them to issue more home loans to low or moderate income home buyers (in other words, people who really couldn't afford a home).

Bush issued repeated warning as soon as he entered office back in 2001. He again did so in 2003. He warned that these 2 entities were getting too big. Then legislation sponsored by McCain failed in Congress, in 2005. There were numerous hearings in which the dems, heatedly fired back saying that the housing market was fine. I am at work right now, but there are numerous youtube links to these hearings.

Now, the same people who are directly responsible for this mess are the ones helping to bail it out?

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 9:24 pm 
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Hostrauser wrote:
Fannie Mae, pre-takeover, was *NOT* funded or backed by the U.S. government.

So, actually, you're wrong: this was not a case of bureaucratic mismanagement. Ironically, in fact, you have things backward: the Fannie/Freddie debacle was a case of capitalism failing and the rescue coming in the form of socialism (government takeover).

Capitalism DID NOT FAIL, it was corupted by those that wanted sub-prime loans made to folks, that under a properly run capitalist system, would have never been approved for the loans! They even had Acorn protesting and picketing in front of banks that would not get with the program. Then Wall Street figured, that since Washington wanted it so bad, what the heck and ran wild with it! Capitalism, if allowed to run properly, works just fine. If you break the rules you WILL break the system!

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 Post subject: Re: Well... it's finally over...
PostPosted: Thu Nov 06, 2008 9:51 pm 
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crfrey71 wrote:
Hostrauser wrote:
Fannie Mae, pre-takeover, was *NOT* funded or backed by the U.S. government.

So, actually, you're wrong: this was not a case of bureaucratic mismanagement. Ironically, in fact, you have things backward: the Fannie/Freddie debacle was a case of capitalism failing and the rescue coming in the form of socialism (government takeover).


WRONG, WRONG, WRONG!!! It is govt sponsored! The govt had everything to do with it's failure. Barney Frank, Chris Dodd, Barack Obama, Clinton, and also some republicans. They pressured them to issue more home loans to low or moderate income home buyers (in other words, people who really couldn't afford a home).

Charles, you're wrong. There's no other way to say it: you don't understand what you're talking about.

FNMA was founded as a government organization in 1938. In 1968, Congress set it free and it became a stockholder-owned company ("public"). You can go out and buy shares in Fannie Mae right now. Government-run organizations are not traded on the New York Stock Exchange.

Now, when FNMA was made public, because of it's federal origins and its deep involvement in the U.S. economy, it was given the designation of a GSE: "Government Sponsored Enterprise." I know you just said, "A-ha! See?", but hold on a minute. The phrase "government sponsored enterprise" is extremely misleading:
1) GSEs receive NO funding from the federal government
2) GSEs are NOT backed or insured by the federal government
3) GSEs are NOT run or controlled by the government (in excess of the normal financial laws that apply to every other corporation)
4) GSEs carry NO federal guarantees of support or solvency.

What do GSEs get?
1) Exemptions from FDIC-mandated capital requirements. Specifically, regulations exist through the FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%. Fannie and Freddie are exempt from this.
2) Exemptions from state and local (but NOT federal) taxes.
3) Ability to borrow money at lower rates than regular companies.

The governmental "perks" result in about $6.5 billion per year in extra profit. In turn, the government expects GSEs to conduct business "for the public good." The HUD "regulates" Fannie and Freddie in that every four years the HUD audits the two companies' finances to insure they are purchasing enough CMOs of "affordable" mortgages made to under-served (low-income) borrowers. By itself, this is not a bad thing. But we get back to this later.

Your statement "They pressured them to issue more home loans to low or moderate income home buyers" is evidence that you don't understand how Fannie Mae works. Fannie Mae and Freddie Mac have never issued a single loan to a single person. That's not their business. To simplify as much as I can, Fannie and Freddie purchase mortgages and turn them into securities that can be traded on the stock market. Or, to make it even simpler, Fannie and Freddie are more or less legal loan sharks for our banking system.

Here's how it basically works (without turning this into a thesis): mortgage-lenders (like Countrywide) will group together bundles of loans into a package called a "Collateralized Mortgage Obligation" (CMO). Fannie purchases these CMOs from the lenders at a lower interest rate and dices them up into many pieces, and sells them as securities or bonds on the stock market. Fannie profits from the interest differential, which racks up quickly (you'd be amazed at how easy it is to turn a 1% interest differential on bundles of $500k loan into billions of dollars in profit). The banks/mortgage lenders lose some of their profit on the interest due to the sale of these CMOs, but because home-loans usually have such long life-spans before being paid in full, the banks gain immediate liquidity from Fannie Mae (which much more important, as this allows them to go out immediately and make more loans for more profit, instead of waiting 30-years for the first loan to be paid off). Banks expect a certain amount of defaults and loans paid-off-early: bundling them into large groups (and, in turn, selling them as many bonds) reduces the risk on the CMOs. The public buys CMO-based securities from Fannie Mae, which gives Fannie Mae more liquidity to purchase CMOs from the mortgage lenders, which gives the mortgage lenders more liquidity to make loans to the public.

The problem with this scheme is that securities and bonds can't be defaulted on: they have a guaranteed payment schedule to the purchasers. So, when the default rate got too high on the mortgages, banks started losing money on their loans, and Fannie Mae lost money on the CMOs they purchased from the banks. However, Fannie then had to take another hit by paying off the guaranteed securities, which left them without enough money to keep purchasing the same amount of CMOs from the banks; the banks, now simultaneously eating bad loans and NOT receiving an influx of cash from Fannie and Freddie, couldn't maintain and collapsed. Now ALL of the banks loans were bad, causing Fannie to eat even MORE money, and again when they were forced to pay off even more securities. I know the federal take-over of Fannie and Freddie was not popular (I, initially, was against it), but America was seriously and without exaggeration staring at a run-away, financial chain reaction that--if left unchecked--very possibly would have led to the complete and total collapse of the American economy, from the stock market down to the ATMs.

Now, Fannie Mae had rules and requirements for CMOs just like banks and mortgage lenders had for the loans themselves. In 1999, President Bill Clinton urged Fannie Mae to loosen their requirements on the types of CMOs they would purchase from the banks, and gave the HUD (Federal Department of Housing and Urban Development) leeway to help make this happen. Technically, Fannie Mae, being a public company not controlled by the government, could have told Clinton to go take a flying leap if they wanted to. However, the economy was booming and Fannie Mae's stockholders saw the potential for even more profit, so they demanded the executives of Fannie Mae listen to Clinton. The HUD announced to Fannie Mae's execs that they could count subprime loans as "affordable" in their reporting to the federal government.

When the mortgage lenders heard of this, they must have felt like they just found the goose that laid the golden egg. Now knowing that Fannie would be purchasing more and more high-profit, high-risk CMOs based on high-profit, high-risk subprime loans, the mortgage lenders completely abandoned good business practices in an effort to essentially rape the market for as much profit as possible. By the early 2000s the mortgage lenders were screwing consumers with monstrously unfair loans and getting away with it entirely.

In 2000 the HUD revisited its affordable-housing goals. Consumer advocates warned that lenders were trapping borrowers with low "teaser" interest rates and ignoring borrowers' qualifications. Clinton's HUD restricted Freddie and Fannie, saying it would not credit them for "affordable" loans when the loans they purchased that had abusively high costs or that were granted without regard to the borrower's ability to repay. Freddie and Fannie adopted policies not to buy some high-cost loans.

But greed struck again. Fannie and Freddie were making so much profit on these risky loans that they started misrepresenting the financial numbers they reported to the HUD. The HUD, in turn, did not audit the two companies NEARLY as deeply as they should have.

In 2004 the HUD revisited its affordable-housing goals again, a perfect opportunity to stop the madness. Astonishingly, President Bush and his HUD just poured more fuel on the fire: President Bush, alarmed by an economy that was starting to lag due to wars overseas, suggested the HUD bump up the main affordable-housing goal over the next four years, from 50 percent to 56 percent, to spur the economy even further.

And now, in 2008, total collapse.

Who's to blame? If you want my opinion, it breaks down thusly:
5% - Bill Clinton. He inadvertently started the whole mess by encouraging a risky business practice. In his defense, in only a year Clinton and his advisers realized the propensity for abuse in the system and put restrictions on Fannie and Freddie during his last year in office.

40% - Fannie and Freddie. Bad business practices are bad business practices. Lying about them is even worse. Blinded by greed, the GSEs were enablers in this whole deal.

45% - Mortgage Lenders. It's not realistic to expect every citizen to have an accounting degree. Some people in America right now want to blame the citizenry for accepting loans they knew they couldn't afford. The problem is that in many cases, they DIDN'T know they couldn't afford them. The mortgage lenders would create numbers (with unrealistically low interest rates) that they COULD afford, and not disclose how much could change during the life of the loan: they'd simply put in a line about how the interest rates and payments were "subject to change" without including any specifics. Banks and other mortgage-lenders were setting their customers up for failure and they knew it. They were sacrificing people's livelihood in the name of fast and furious profit. It's some of the most reprehensible, vampiric business practices every witnessed in the history of this country.

10% - George Bush. Yeah, I know, you blame the criminals for committing the crime, not the police for failing to prevent it. But when 9-1-1 is goes unanswered for eight years? Bush had two terms to address this issue and he did nothing at all [tangent: Bush's 2003 attempt to reform the process by which the HUD regulated Fannie and Freddie did not directly address the issue at hand (indeed, this was more a response to Fannie's lying to the government, not the underlying bad business practices), and was more a cheap attempt to wash his hands of the issue, since it would have REMOVED the President's ability to appoint HUD regulators]. Either he chose not to act on the underlying problem (negligence) or he refused to acknowledge there was an underlying problem (incompetence). Take your pick.

Lastly, NO ONE in Congress, from either party, has the right to say "I told you so" on this situation. By the time the McCain became a co-sponsor of Hagel's bill and addressed Congress in 2006 (again, in response to a HUD report that Fannie was lying to the government, not addressing the underlying bad business practices) it was akin to someone standing in Rancho Bernardo on October 22, 2007 and saying, "hey, wow, a fire!"

Final tangent: Hagel's bill, S.190 (which wouldn't have prevented the current economic crisis, although that's another topic for another day), passed committee in amended form 11 to 9. From there, it was the committee chair's responsibility (that would be Senator Rick Santorum, R-PA) to bring suggest the bill for voting. The Senate Majority Leader (at that time, Senator Bill Frist, R-TN) determines the order of the voting. This never happened. Why? You'd have to ask them. The Summer of 2006 forced Congress to deal with Hurricane Katrina; it's possible S.190 fell off the radar. It's possible Senators Santorum and Frist felt the bill didn't have the necessary support to pass. Regardless, while some partisans like to state that Senate Democrats "blocked" the bill's passage, this is not the case. There was no Democratic filibuster because the bill was never brought to vote by the Republicans. The bill died from Congressional apathy on January 3rd, 2007, at the close of the 109th Congress.

Class. Dismissed.


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 Post subject: Re: Well... it's finally over...
PostPosted: Fri Nov 07, 2008 12:32 am 
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Hostrauser wrote:
crfrey71 wrote:
Hostrauser wrote:
Fannie Mae, pre-takeover, was *NOT* funded or backed by the U.S. government.

So, actually, you're wrong: this was not a case of bureaucratic mismanagement. Ironically, in fact, you have things backward: the Fannie/Freddie debacle was a case of capitalism failing and the rescue coming in the form of socialism (government takeover).


WRONG, WRONG, WRONG!!! It is govt sponsored! The govt had everything to do with it's failure. Barney Frank, Chris Dodd, Barack Obama, Clinton, and also some republicans. They pressured them to issue more home loans to low or moderate income home buyers (in other words, people who really couldn't afford a home).

Charles, you're wrong. There's no other way to say it: you don't understand what you're talking about.

FNMA was founded as a government organization in 1938. In 1968, Congress set it free and it became a stockholder-owned company ("public"). You can go out and buy shares in Fannie Mae right now. Government-run organizations are not traded on the New York Stock Exchange.

Now, when FNMA was made public, because of it's federal origins and its deep involvement in the U.S. economy, it was given the designation of a GSE: "Government Sponsored Enterprise." I know you just said, "A-ha! See?", but hold on a minute. The phrase "government sponsored enterprise" is extremely misleading:
1) GSEs receive NO funding from the federal government
2) GSEs are NOT backed or insured by the federal government
3) GSEs are NOT run or controlled by the government (in excess of the normal financial laws that apply to every other corporation)
4) GSEs carry NO federal guarantees of support or solvency.

What do GSEs get?
1) Exemptions from FDIC-mandated capital requirements. Specifically, regulations exist through the FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%. Fannie and Freddie are exempt from this.
2) Exemptions from state and local (but NOT federal) taxes.
3) Ability to borrow money at lower rates than regular companies.

The governmental "perks" result in about $6.5 billion per year in extra profit. In turn, the government expects GSEs to conduct business "for the public good." The HUD "regulates" Fannie and Freddie in that every four years the HUD audits the two companies' finances to insure they are purchasing enough CMOs of "affordable" mortgages made to under-served (low-income) borrowers. By itself, this is not a bad thing. But we get back to this later.

Your statement "They pressured them to issue more home loans to low or moderate income home buyers" is evidence that you don't understand how Fannie Mae works. Fannie Mae and Freddie Mac have never issued a single loan to a single person. That's not their business. To simplify as much as I can, Fannie and Freddie purchase mortgages and turn them into securities that can be traded on the stock market. Or, to make it even simpler, Fannie and Freddie are more or less legal loan sharks for our banking system.

Here's how it basically works (without turning this into a thesis): mortgage-lenders (like Countrywide) will group together bundles of loans into a package called a "Collateralized Mortgage Obligation" (CMO). Fannie purchases these CMOs from the lenders at a lower interest rate and dices them up into many pieces, and sells them as securities or bonds on the stock market. Fannie profits from the interest differential, which racks up quickly (you'd be amazed at how easy it is to turn a 1% interest differential on bundles of $500k loan into billions of dollars in profit). The banks/mortgage lenders lose some of their profit on the interest due to the sale of these CMOs, but because home-loans usually have such long life-spans before being paid in full, the banks gain immediate liquidity from Fannie Mae (which much more important, as this allows them to go out immediately and make more loans for more profit, instead of waiting 30-years for the first loan to be paid off). Banks expect a certain amount of defaults and loans paid-off-early: bundling them into large groups (and, in turn, selling them as many bonds) reduces the risk on the CMOs. The public buys CMO-based securities from Fannie Mae, which gives Fannie Mae more liquidity to purchase CMOs from the mortgage lenders, which gives the mortgage lenders more liquidity to make loans to the public.

The problem with this scheme is that securities and bonds can't be defaulted on: they have a guaranteed payment schedule to the purchasers. So, when the default rate got too high on the mortgages, banks started losing money on their loans, and Fannie Mae lost money on the CMOs they purchased from the banks. However, Fannie then had to take another hit by paying off the guaranteed securities, which left them without enough money to keep purchasing the same amount of CMOs from the banks; the banks, now simultaneously eating bad loans and NOT receiving an influx of cash from Fannie and Freddie, couldn't maintain and collapsed. Now ALL of the banks loans were bad, causing Fannie to eat even MORE money, and again when they were forced to pay off even more securities. I know the federal take-over of Fannie and Freddie was not popular (I, initially, was against it), but America was seriously and without exaggeration staring at a run-away, financial chain reaction that--if left unchecked--very possibly would have led to the complete and total collapse of the American economy, from the stock market down to the ATMs.

Now, Fannie Mae had rules and requirements for CMOs just like banks and mortgage lenders had for the loans themselves. In 1999, President Bill Clinton urged Fannie Mae to loosen their requirements on the types of CMOs they would purchase from the banks, and gave the HUD (Federal Department of Housing and Urban Development) leeway to help make this happen. Technically, Fannie Mae, being a public company not controlled by the government, could have told Clinton to go take a flying leap if they wanted to. However, the economy was booming and Fannie Mae's stockholders saw the potential for even more profit, so they demanded the executives of Fannie Mae listen to Clinton. The HUD announced to Fannie Mae's execs that they could count subprime loans as "affordable" in their reporting to the federal government.

When the mortgage lenders heard of this, they must have felt like they just found the goose that laid the golden egg. Now knowing that Fannie would be purchasing more and more high-profit, high-risk CMOs based on high-profit, high-risk subprime loans, the mortgage lenders completely abandoned good business practices in an effort to essentially rape the market for as much profit as possible. By the early 2000s the mortgage lenders were screwing consumers with monstrously unfair loans and getting away with it entirely.

In 2000 the HUD revisited its affordable-housing goals. Consumer advocates warned that lenders were trapping borrowers with low "teaser" interest rates and ignoring borrowers' qualifications. Clinton's HUD restricted Freddie and Fannie, saying it would not credit them for "affordable" loans when the loans they purchased that had abusively high costs or that were granted without regard to the borrower's ability to repay. Freddie and Fannie adopted policies not to buy some high-cost loans.

But greed struck again. Fannie and Freddie were making so much profit on these risky loans that they started misrepresenting the financial numbers they reported to the HUD. The HUD, in turn, did not audit the two companies NEARLY as deeply as they should have.

In 2004 the HUD revisited its affordable-housing goals again, a perfect opportunity to stop the madness. Astonishingly, President Bush and his HUD just poured more fuel on the fire: President Bush, alarmed by an economy that was starting to lag due to wars overseas, suggested the HUD bump up the main affordable-housing goal over the next four years, from 50 percent to 56 percent, to spur the economy even further.

And now, in 2008, total collapse.

Who's to blame? If you want my opinion, it breaks down thusly:
5% - Bill Clinton. He inadvertently started the whole mess by encouraging a risky business practice. In his defense, in only a year Clinton and his advisers realized the propensity for abuse in the system and put restrictions on Fannie and Freddie during his last year in office.

40% - Fannie and Freddie. Bad business practices are bad business practices. Lying about them is even worse. Blinded by greed, the GSEs were enablers in this whole deal.

45% - Mortgage Lenders. It's not realistic to expect every citizen to have an accounting degree. Some people in America right now want to blame the citizenry for accepting loans they knew they couldn't afford. The problem is that in many cases, they DIDN'T know they couldn't afford them. The mortgage lenders would create numbers (with unrealistically low interest rates) that they COULD afford, and not disclose how much could change during the life of the loan: they'd simply put in a line about how the interest rates and payments were "subject to change" without including any specifics. Banks and other mortgage-lenders were setting their customers up for failure and they knew it. They were sacrificing people's livelihood in the name of fast and furious profit. It's some of the most reprehensible, vampiric business practices every witnessed in the history of this country.

10% - George Bush. Yeah, I know, you blame the criminals for committing the crime, not the police for failing to prevent it. But when 9-1-1 is goes unanswered for eight years? Bush had two terms to address this issue and he did nothing at all [tangent: Bush's 2003 attempt to reform the process by which the HUD regulated Fannie and Freddie did not directly address the issue at hand (indeed, this was more a response to Fannie's lying to the government, not the underlying bad business practices), and was more a cheap attempt to wash his hands of the issue, since it would have REMOVED the President's ability to appoint HUD regulators]. Either he chose not to act on the underlying problem (negligence) or he refused to acknowledge there was an underlying problem (incompetence). Take your pick.

Lastly, NO ONE in Congress, from either party, has the right to say "I told you so" on this situation. By the time the McCain became a co-sponsor of Hagel's bill and addressed Congress in 2006 (again, in response to a HUD report that Fannie was lying to the government, not addressing the underlying bad business practices) it was akin to someone standing in Rancho Bernardo on October 22, 2007 and saying, "hey, wow, a fire!"

Final tangent: Hagel's bill, S.190 (which wouldn't have prevented the current economic crisis, although that's another topic for another day), passed committee in amended form 11 to 9. From there, it was the committee chair's responsibility (that would be Senator Rick Santorum, R-PA) to bring suggest the bill for voting. The Senate Majority Leader (at that time, Senator Bill Frist, R-TN) determines the order of the voting. This never happened. Why? You'd have to ask them. The Summer of 2006 forced Congress to deal with Hurricane Katrina; it's possible S.190 fell off the radar. It's possible Senators Santorum and Frist felt the bill didn't have the necessary support to pass. Regardless, while some partisans like to state that Senate Democrats "blocked" the bill's passage, this is not the case. There was no Democratic filibuster because the bill was never brought to vote by the Republicans. The bill died from Congressional apathy on January 3rd, 2007, at the close of the 109th Congress.

Class. Dismissed.


Hostrauser,

I do know what I am talking about and understand how it works. Here. Let me provide a link that was part of my response in the previous post, so you understand where I am coming from:

http://en.wikipedia.org/wiki/Fannie_Mae

"In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers. At the same time, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans. Shareholders also pressured Fannie Mae to maintain its record profits.[7]

In 2000, due to a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.[8]"

Now, how did these rules get dropped??? Who urged and pressed the affordable housing to low income buyers? Follow the money trail. It is that easy. And that money trail goes right to Congress.

So yeah. Technically, Freddie and Fannie are private, but look who was pulling the strings.

You are right about greed. But it certainly wasn't capitalism that failed here. You leave capitalism to run properly, it works the best of any system in the world.

Anyways, Congress definitely knew what was happening:

http://www.youtube.com/watch?v=3p1Wc2NFa3w

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