Replies

Government put an untenable burden on banks by forcing them to loan to uncreditworthy borrowers through the CRA regulation passed in the 1970s and supercharged by Clinton in the early 1990s, as a result of over-dramatized “redlining” stories in the press.

As these loans built up on the banks’ portfolios, the banks themselves became more unstable and liable to large losses as the loans failed. See this article:

The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
http://www.city-journal.org/html/10_1_the_trillion_dollar.html

After Enron the inscrutable Sarbanes Oxley regulations included the Mark to Market rule and other accounting changes. These regs were poorly understood and inhibited stock market investments and IPOs in the early 2000s. Money does not like uncertainty, and diverted into the real estate market instead, until Sarbox could be sorted out. The attacks on 9/11 did not make the market any more attractive and again, money sought security.

To relieve the burden of uncreditworthy CRA loans, Congress had Fannie Mae and Freddie Mac lower their standards to buy these loans. This opened the door for thousands of similar loans and other financing vehicles, that were sold even to borrowers who were able to qualify for standard 30 year mortgages. The GSEs bought them because they looked profitable on their books. Fannie and Freddie spread a lot of money to congressmen and their CEOs took home huge bonuses, and everyone seemed happy about the newly discovered prosperity that had arrived. Money flowed into the real estate bubble and financial companies’ stock also soared, raising the Dow to unheard of levels.

Banks also kept subprime loans on their books because they were rated AAA and made them look profitable. But banks were still not sure their investments would remain viable, so they bought Credit Default Swaps from AIG and other insurers to hedge their investments. Hank Greenberg was opposed to selling these instruments in any number because of their inherent complexity, but was forced out by Eliot Spitzer. Shortly after that, AIG-FP in London went all-out selling these CDS instruments:

Behind Insurer’s Crisis, Blind Eye to a Web of Risk
http://www.nytimes.com/2008/09/28/business/28melt.html?_r=3&ref=business&oref=slogin&oref=slogin&oref=slogin

The problem with the CDS “policies” is that they were unregulated insurance products with no reserve requirements. So when the housing bubble burst, the insurance companies were expected to pay the claims for these instruments, but they had no reserves to do so. This was what accelerated the implosion of the credit market. After some sporadic runs on banks in late 2008, the crisis reached epic proportions.

The bonanza in housing led to strawman purchases by rings of frausters. Again, the low loan standards (to accommodate CRA loans), allowed strawman loans to meet the new lower guidelines at Fannie and Freddie. In more prudent times, those loans would never have passed muster at the bank because they could not be sold into the secondary market. There was therefore an artificial market for extremely shaky loans - the GSEs were supposed to purchase them!

Banks are restricted as to what they can invest in, and after the collapse of Fannie and Freddie, other financial companies, and similar banks, their assets have been reduced to dangerously low values. Many large banks, if not all, are leveraged to the point where they are technically insolvent. They can’t loan money because they have no reserves to do so.

Sadly it is better for the banks’ books to foreclose than to negotiate a lower principle on toxic properties. If they lower the principle, the value of the property is reduced and the banks have less asset value. If they foreclose, the property technically retains its original value and the banks can continue for a while with the inflated value on their books. That’s why they are foreclosing rather than allowing short sales or principle forgiveness.

Now that Credit Default Swaps are worth only ten cents on the dollar, the banks have that much less in reserves or asset valuation, and their loan assets have an unassessed value. They are quite likely insolvent; we just don’t know how insolvent they really are. It’s probably in the trillions of dollars, a terrifying number.

Monday, April 20, 2009
Barack Obama at Office Depot

The current estimated future obligations for the United States in regards to Medicare, Medicaid, and Social Security are $1.25 quadrillion.

The Obama presidency, in less than 100 days, has already spent or proposed in the neighborhood of $10 trillion. Yes, that is $10 thousand billion.

The federal deficit amassed in over 200 years from the American War for Independence in 1776 to the administration of George W. Bush in 2008 was roughly $11 trillion.

The total interest on the U.S. debt is $1.2 billion per day.

Today, Barack Hussein Muhammad bin Obama demanded that his cabinet find a way to save $100 million.

Department of Homeland Security chief Janet Napolitano today indicated that her executive department can save millions of dollars each year by purchasing office supplies in bulk.

“According to [Napolitano], millions of dollars can be saved by making changes in such things as how the department orders office supplies, gets computer software and uses energy.”

So the answer for Barack Hussein Muhammad bin Obama’s DOUBLING of the federal debt in less than 100 days is to, in the future, purchase paper clips from Sam’s Club and Office Depot?

The AP (apparently now fully recovered from campaign-season orgasms) even reports the cuts as making hardly a “dime’s worth of difference.”

“Cut a latte or two out of your annual budget and you’ve just done as much belt-tightening as President Barack Obama asked of his Cabinet on Monday.
The thrifty measures Obama ordered for federal agencies are the equivalent of asking a family that spends $60,000 in a year to save $6.”

The ship is sinking. Find a lifeboat and stand by it. You won’t be waiting long....

full link here:

http://baracksafool.blogspot.com/