Free Republic

Richard McKenzie: We're in a 'policy bubble,' which, too, will burst UC Irvine economics professor By RICHARD B. McKENZIE In the late 1990s, stock markets went through the "dot.com" bubble. Investors bought with "irrational exuberance" the new-era story that that the world economy had changed so much that high-flying price-earnings ratios for Internet stocks could be justified by the untold profits that virtually any firm establishing a low-cost "storefront" in cyberspace could earn into the distant future. The bubble burst in March 2000 when investors finally realized that the low cost of entry would ensure that profits of the vast...

African Americans and other minorities seeking mortgages in the Twin Cities have some of the highest home loan rejection rates in the country. A new study by the Institute on Race and Poverty also finds high income minorities in the Twin Cities are turned down for home loans more often than whites with much lower incomes.

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Two narratives seem to be forming to describe the underlying causes of the financial crisis. One, as outlined in a New York Times front-page story on Sunday, December 21, is that President Bush excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made the bad loans. The result was a banking system suffused with junk mortgages, the continuing losses on which are dragging down the banks and the economy. The other narrative is that government policy over many years--particularly the use of the Community Reinvestment Act and Fannie Mae and Freddie Mac to...

With over 3500 registrants to date, we believe that ASF 2009 will once again be not only the largest, but the most valuable and productive, securitization industry event of the year. Notwithstanding--or perhaps because of--the very serious challenges we face, ASF 2009 once again promises to be an exceptional, "critical mass" event that will bring together a diverse range of industry participants from all sectors of the securitization market. Over 1700 investors and issuers, and more than 110 sponsoring organizations, highlight the industry-wide support the event is receiving.

It is all very well for President Obama to vent his anger on all those US bankers who continued to claim billions of dollars in bonuses while expecting Washington to bail them out after the sub-prime mortgage scandal brought the banks to their knees. But conveniently overlooked has been the curious part Mr Obama himself played in the sub-prime debacle. At the heart of it was a 1995 amendment to the Community Reinvestment Act which legally required banks to lend money to buy homes to millions of poor, mainly black Americans, guaranteed by the two biggest mortgage associations, Fannie Mae...

There’s more?If this country had a dollar for every “new” financial plan President Obama has proposed, we’d be talking about the national debt in the past tense. The latest and greatest messianic initiative, announced today by the President, will somehow lower American mortgage costs and get America’s credit juices flowing again, blah, blah, blah.There is, however, one little problem with it.It doesn’t exist yet.There was no actual plan released today … just a plan to announce the official plan sometime soon.At least that’s the plan.Said the President in today’s weekly radio address: Soon my Treasury secretary, Tim Geithner, will announce...

The New York Times Co.'s efforts to complete the sale of its Midtown headquarters took on greater urgency yesterday after Moody's Investors Service joined Standard & Poor's in downgrading the troubled newspaper company's debt to "junk" status. Moody's move is expected to sharply impact the Times Co.'s ability to raise debt, as companies with junk ratings often find it prohibitively expensive to borrow capital through traditional channels. The rating agency cut the Times Co.'s rating to Ba3 from Baa3, saying that crumbling advertising revenue will continue to put "significant downward pressure" on the company's cash flow.

... A North County Times investigation into thousands of foreclosure records, along with interviews with buyers, reveals a pattern that suggests some real estate agents specialized in clients ---- chiefly Latinos ---- who couldn't afford to buy homes, and helped them buy as many as possible. (Please see "Behind the Numbers" for more on the statistical analysis. ) Some of their customers say the agents posted fliers in low-income apartment buildings and held seminars that encouraged people to get rich by buying and selling multiple properties, usually with low or no down payments. In North County, 6 percent of about...

“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations...

Prepare to bury the fatally wounded big banks By Frank Partnoy Published: January 18 2009 19:04 | Last updated: January 18 2009 19:04 Friday’s bad news from Citigroup and Bank of America confirmed what many experts have long suspected: the subprime losses of 2007 were a bullet that fatally wounded the banks. Many lost so much money on toxic subprime mortgage-related derivatives that they have been essentially insolvent for more than a year. It has taken so long for these banks to fall only because of government support and some investors’ bottomless capacity for denial. Consider Friday’s eye-popping figures. Bank...

New York Times Co. reached an agreement under which companies backed by the Mexican telecom investor Carlos Slim will invest $250 million and could boost their holding, helping the New York media company reduce its debt and strengthen its finances. -snip- The notes have what the Journal called a relatively rich coupon of 14.053%

President-elect Barack Obama will push bankers to resume lending to businesses and consumers to help put the ailing economy back on track, but things will get worse before they get better, his top aides said Sunday. "I think he is going to have a strong message for the bankers," said David Axelrod, a top Obama adviser. "We want to see credit flowing again. We don't want them to sit on any money that they get from taxpayers." Obama, a Democrat who is to be sworn in at noon Tuesday as the 44th U.S. president, inherits a $1 trillion-plus deficit and...

HSBC came under pressure to let Household, its American sub-prime bank, go bankrupt yesterday, in order to avoid an expensive rights issue or government bailout. The proposal was dismissed by HSBC, although the bank is to consider making a cash call in the coming months that some analysts believe could involve it asking for £13.5billion from shareholders. Knight Vinke, the activist investor, told The Times last night that HSBC should refuse to pay the bondholders that fund Household's business, which it estimated would save the bank an estimated $35 billion. (£23.6 billion). Eric Knight, Knight Vinke's chief executive, said: “Why...

WASHINGTON – When it comes to homeownership, Hispanics in New Jersey, single parents in California and senior citizens in Rhode Island all have something in common: More than a third have an unaffordable mortgage. Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data. While minorities have made significant gains in wealth and home ownership since 1990, "things are going into reverse gear," and now the homeownership rate for blacks...

WASHINGTON - Inland Rep. Joe Baca disputed criticism from a housing advocacy group and another lawmaker that he and the Congressional Hispanic Caucus added to the national housing crisis through overzealous support of programs that enabled unqualified buyers to purchase homes. Baca, D-Rialto, said he has worked to increase responsible homeownership among minorities. He rejected an advocacy group's assertion that the Hispanic caucus was warned about lenders targeting Latino buyers with risky subprime and adjustable rate loans. Baca also denied any link between a $25,000 donation to his own foundation and his decision to co-sponsor housing legislation pushed by the...

Federal bankruptcy judges say they are eager to have the power to restructure mortgages for struggling debtors because it could save hundreds of thousands of homeowners from foreclosure. Top Senate Democrats are advancing legislation to let bankruptcy-court judges approve new repayment terms on first mortgages for primary residences for homeowners who have sought protection in a Chapter 13 filing. The proposal allowing so-called mortgage cramdowns, in which the principal amount of the loan is reduced, is one of several efforts Democrats are pushing to give homeowners relief as they wrestle with increasing debt levels and plummeting home values. Judges overseeing...

Blaming CRA makes little sense, but gets finance industry off the hook ___It seems, on the face of it, a theory too absurd to even be taken seriously: A ragtag band of anti-poverty activists pushes the White House into forcing lenders to make bad loans to poor and minority borrowers, setting off a subprime loan crisis that puts the entire global economy at risk. Yet in the frenzy of coverage as a financial markets collapse loomed in mid-September, the idea that the Community Reinvestment Act (CRA) was somehow responsible took off in the media—in the mainstream press as well as...

As "annus horribilis" 2008 recedes into the background it might be timely to look back a few years and ask: Who really saw all of this coming? Was such an economic and financial disaster foreseeable? What kind of financial sage would have predicted it three or four years ago, in the middle of the "go-go" years? Well, it turns out there was such a prescient, counterintuitive person, keen of mind and generous of soul. That person himself passed away at age 95 in mid-2008. He was, Sir John Templeton, stock picker of the century, innovator, renowned philanthropist, and always a...

General Motors Corp. and its dealers rushed to roll out new financing offers Tuesday after the Treasury Department pumped $6 billion into GMAC LLC, the lending giant partly owned by GM. In a hastily called news conference, GM said it would offer 0% financing on five 2008 models and 0.9% to 5.9% loans on dozens of other 2008 and 2009 models in a year-end sales push backed by GMAC. GM and GMAC had regularly offered no-interest auto loans for most of this decade but pulled back after the financial crisis forced GMAC to tighten credit standards in October. ... GMAC...

The media and various commentators have recently likened the subprime crisis and its ramifications to date to the great depression of the thirties. There no doubt are similarities between the two crises. However it is important to realize that there also are important differences. Those differences lead one to believe that the persistence and severity of the current crisis, although serious, will be substantially milder than those of the great depression. Following a brief summary of the main similarities this blog focuses therefore on the differences between the two episodes. What are the main similarities that lead to frequent comparisons...

... On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier. ... WaMu’s boiler room culture flourished in Southern California, where housing prices rose so rapidly during the bubble that creative financing was needed to attract buyers. To that end, WaMu embraced so-called option ARMs, adjustable rate mortgages that enticed borrowers with a...

SAN FRANCISCO — Herbert Sandler, the founder of the Center for Responsible Lending, is standing in his bayfront office watching a DVD that trains brokers to pitch mortgages by extolling the glories of the real estate boom. The video reeks of hucksterism, and it infuriates Mr. Sandler. “I would not have approved that!” he declares. “I don’t think we should be selling our loans based on home prices continuing to go up.” But the DVD was produced in 2005 by a mortgage lender that Mr. Sandler and his wife, Marion, ran at the time: World Savings Bank. And the video...

Recently I assisted two separate couples whose stories are so remarkably similar that it suggests more than coincidence. I was right. There is something going on. Both are working couples with children, and each has a good education. Both wives were hospitalized, had lengthy absences from work, and both fell behind on their mortgage payments. That's bad enough. But what their mortgage service company did to them next is where our story really begins. This should be required reading for everyone with a mortgage. Sub-prime lending is really most of us. It is a category of borrowers with a broad...

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed. There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk. But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that...

Media: If, as they say, it's journalists who write history's first draft, then future texts will be riddled with errors about the origins of the subprime disaster, teaching future leaders the wrong lessons.Just how did Americans come to lose $10 trillion in real estate and stock wealth? And why are our children and grandchildren on the hook for as much as $8 trillion in federal bailout money? These are some of the most important questions of our time. Yet the mainstream media, plagued by monopartisan bias, are not providing the public honest answers. Take, for instance, a recent front-page article...

In "Uncle Shariah" in the Washington Times, December 16, Frank Gaffney details why AIG's nationalization is so worrisome: The insurance giant AIG has lately become the poster child for corporate risk-taking, mismanagement and greed. Its unimaginably large losses, rooted in insurance it extended to financial companies engaged in subprime mortgage-backed transactions, have destroyed both AIG's corporate reputation and balance sheet. Indeed, but for the fact that Treasury Secretary Henry Paulson - who during his days running Goldman Sachs had extensive ties to AIG - deemed the insurance firm "too large to fail," the company would surely have gone under by...

THE national wave of home foreclosures, many concentrated in lower-income and minority neighborhoods, has created a strong temptation to find the villains responsible. ... There’s little doubt that the rating agencies helped inflate the housing bubble. But when we round up all the culprits, we shouldn’t ignore the regulators and affordable-housing advocates who pushed lenders to make loans in low-income neighborhoods for reasons other than the only one that makes sense: likely repayment. ... The Community Reinvestment Act was passed in 1977 when bank competition was sharply limited by law and lenders had little incentive to seek out business in...

Southeast Francesca Lane cuts up and around a hillside to reveal the boom-time promise of Happy Valley circa 2006. Young families rolled in to snap up $600,000, stone-fronted homes with Mount Hood views. They came for the country meets cul-de-sac life, solid schools and a 4,000-square-foot edition of the American dream. Speculators trailed on their heels for the next get-rich-quick venture. Francesca Lane circa 2008 isn't dreamy any longer. One of every five homes or lots on the street has fallen into foreclosure since the neighborhood sprang up three years ago. The street offers a grim picture of how greed...

Housing Crisis: A new report from the Associated Press claims that the mortgage meltdown is due largely to President Bush's failure to act in 2005. Sounds plausible — until you actually look at the facts."Under pressure, U.S. eased lending rules," reads the AP special report's headline. But "U.S." is really a misnomer. The news service really means "Bush." "The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed," the report asserts. The report goes on to catalog what it says are...

Credit-Card Fees Targeted by Retailers Who Say Banks Overcharge

In what is apparently the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street rating firms, charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African American and Latino home buyers across the country. The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investors Service and Fitch Ratings enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

Federal Reserve Chairman Ben Bernanke admitted misjudging the gravity of the subprime mortgage crisis and the brutal chain of events it would cause, in an article from the Dec. 1st edition of The New Yorker magazine, obtained by the Associated Press. In the article, entitled "Anatomy of a Meltdown," Bernanke said, "the causal relationship between the housing problem and the broad financial system was very complex and difficult to predict." Bernanke said he originally thought the housing crisis would be limited, but as the situation deteriorated the Federal Reserve moved to cut interest rates in September 2007, the first cut...

WASHINGTON — Federal Reserve Chairman Ben Bernanke acknowledges he was wrong in believing that there would be limited fallout to financial markets from risky mortgages that soured after the housing market's collapse. "I and others were mistaken early on in saying that the subprime crisis would be contained," Bernanke said in an article in the Dec. 1 issue of The New Yorker magazine. "The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict," he said in the piece titled "Anatomy of a Meltdown." Subprime mortgages made to people with tarnished credit...

Apparently, SNL did a "Bailout" skit, which has created some incredible problems for NBC. They have pulled the video and apparently gone after anyone who put the video out there, because the video has all but disappeared off the internet. It was up on multiple sites and virtually all the copies are gone now. There are a few new "edited" copies on the net. Now how much power would you have to have to pull something from the entire internet? Here is one copy still out there: Unedited SNL Bailout Skit

FHA-Backed Loans: The New Subprime The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more By Chad Terhune and Robert Berner As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers—many of them the very sorts of firms that helped create the current financial crisis—are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means. You read that correctly. Some of the same people who propelled us toward the housing...

Penny Pritzker is connected to the Hyatt family. She was head of Superior Bank in Chicago that went under and cost shareholders millions. She also helped develop sub prime bundling schemes. Oh, and she was one of Obama's campaign finance helpers. AND, NOW....she'll be running the COMMERCE DEPARTMENT!

Michael Lewis, the brilliant author of "Liar's Poker" and "Moneyball" pens a lengthy story for Portfolio where he looks at: [T]he willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the...

~snip~ So where is the country equivalent of sub-prime mortgage lending? You will by now know that part of the answer is Iceland. But it is also in eastern Europe. Over the past month, as well as Iceland, Ukraine, Hungary and Belarus have been forced to turn to the IMF for financial assistance. Bulgaria, Romania, Turkey and the Baltic States could soon find themselves in trouble. All these countries have one thing in common – they have been borrowing huge sums from abroad. It is, of course, normal for emerging economies to borrow in order to finance their development. But...

On the eve of what may be the most important election of our time, the financial catastrophe that many believe will most influence Tuesday's vote remains only partially covered by the major media. Though IBD has run many articles and editorials on the so-called mortgage meltdown, one of the most complete timelines of the debacle was written by an independent scholar and published this week by the Web magazine American Thinker. Because the issue is so important, we are running this 7,300-word history in its entirety. Presidential candidate Barack Obama has put free-market capitalism at the root of the current...

Fueled by easy credit, the real-estate market had been rising swiftly for some years. Members of Congress were determined to assure the continuation of that easy credit. Suddenly, the party came to a devastating halt. Defaults multiplied, banks began to fail. Soon the economic troubles spread beyond real estate. Depression stalked the land. The year was 1836.The nexus of excess speculation, political mischief, and financial disaster—the same tangle that led to our present economic crisis—has been long and deep. Its nature has changed over the years as Americans have endeavored, with varying success, to learn from the mistakes of the...

John W. Courtney's world collapsed at dinnertime on a Friday in July 2001. That's when he learned from a television newscast that much of the $200,000 that he had saved from his construction job over a 30-year period was lost when his Chicago-area bank was shut down after pursuing a failed strategy of subprime loans. Seven years later, the Vietnam War veteran has yet to recoup $85,000 of his uninsured losses from Superior Bank's failure. And he watches in disbelief as one of the bank's former top officials, billionaire hotel heiress Penny Pritzker, leads the record-breaking fundraising machine of Democratic...

Executives at the country's leading credit-rating companies, whose optimistic assessments of risky investments helped fuel the financial meltdown, have privately acknowledged for more than a year that conflicts of interest contributed to the industry's failures, according to internal company documents released Wednesday. The disclosures emerged at a heated congressional hearing where lawmakers grilled the heads of the three major rating companies, accusing them of betraying the public by letting corporate greed trump their responsibility to provide unbiased appraisals for investors. * * * In one of the confidential documents obtained by the committee, Raymond McDaniel, chief executive of ratings firm...

With wanton disregard for the economic well being of America, a decade ago the social justice entrepreneurs of the ultra-leftist Association of Community Organizations for Reform Now (ACORN) let Americans know their strategy for bringing equality of result to the housing market -- at all costs. In a circa 1999 document, "To Each Their Home: Success Stories from the ACORN Housing Corporation," the ACORN affiliate called the American Dream a sham and bragged about undermining banks' underwriting standards. The brochure acknowledged there may be scattered "stories of hope and success" in ACORN-targeted communities, but "they also belie the supposition that...

John W. Courtney's world collapsed at dinnertime on a Friday in July 2001. That's when he learned from a television newscast that much of the $200,000 that he had saved from his construction job over a 30-year period was lost when his Chicago-area bank was shut down after pursuing a failed strategy of subprime loans. Seven years later, the Vietnam War veteran has yet to recoup $85,000 of his uninsured losses from Superior Bank's failure. And he watches in disbelief as one of the bank's former top officials, billionaire hotel heiress Penny Pritzker, leads the record-breaking fundraising machine of Democratic...

The number of new mortgages to blacks and Hispanics fell sharply in New York City in 2007, while staying flat for white borrowers and — surprisingly — rising for Asian-Americans, according to an analysis of federal mortgage data [pdf] released on Monday by the Furman Center for Real Estate and Urban Policy at New York University. As a result, the racial breakdown of home buyers in New York City changed significantly during the period studied, which predated the financial turmoil in the markets this year. The city as a whole saw a 14 percent decline in new mortgages from 2006...

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their...

[T]he latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California's Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages. Some stop paying, pocketing the money while they wait for their lenders to kick them out. A few lose their homes only to stay on as renters, paying hundreds of dollars less a month. Every fifth...

Lehman Brothers' credit default swaps settled without major damage *************************************** NEW YORK (MarketWatch) -- U.S. stocks on Tuesday scaled back declines after the Lehman Brothers credit default swaps settlement was completed with no major fallout, helping offset bleak forecasts from Texas Instruments Inc. and Sun Microsystems Inc. Video: Buy Stocks Now? Is it time to buy U.S stocks? Alec Young of Standard & Poor's says it's too soon to be sure and cautions that corporate earnings could get worse before they get better. (Oct. 21) "U.S. equities have pared losses on the Lehman CDS settlement, which apparently was completed without...

In 2005, the Leadership for a Changing World awards program named Bruce Dorpalen, Director of Housing Counseling ACORN Housing, as a national finalist. Their reason for honoring Dorpalen: "In 1985, to address the issue of mortgage redlining in low-income and minority neighborhoods, Bruce Dorpalen and a team of ACORN community leaders negotiated a community reinvestment agreement with a Philadelphia bank. This agreement changed the way mortgages were underwritten, recognizing the income, savings, and credit of lower-income borrowers and eliminating barriers to qualifying for a mortgage." http://www.leadershipforchange.org/finalists/finalist.php3?ID=308 In 1997, the National Housing Institute also credited ACORN with inventing a new mechanism...