The quotes that explain the entire financial meltdown

posted at 12:10 pm on October 12, 2008 by Ed Morrissey

For those who want a smoking gun to show the genesis of the financial collapse, this short sequence from a longer video I posted this week will do it. Clinton HUD Secretary Andrew Cuomo announced a settlement of a lending discrimination complaint with Accubanc, a Texas lender whose prerequisites for mortgages came under attack from “community organizers” at the Fort Worth Human Relations Commission and the city of Dallas. I clipped out this sequence to underscore its importance:

CUOMO: To take a greater risk on these mortgages, yes. To give families mortgages that they would not have given otherwise, yes.

Q: [unintellible] … that they would not have given the loans at all?

CUOMO: They would not have qualified but for this affirmative action on the part of the bank, yes.

Q: Are minorities represented in that low and moderate income group?

CUOMO: It is by income, and is it also by minorities? Yes.

CUOMO: With the 2.1 billion, lending that amount in mortgages — which will be a higher risk, and I’m sure there will be a higher default rate on those mortgages than on the rest of the portfolio

Here, in fact, is the genesis of the problem, the ideology that created the monster.  Cuomo, the Clinton administration, and Congress believed they had the right and the power to determine acceptable risk for the lenders, rather than lenders determining it for themselves in a free market.  Even while imposing risk standards on lenders, Cuomo admits that he expects a higher default rate on the new loans — which is why the lenders didn’t want to write them in the first place.

In other words, the CRA didn’t get used to fight discrimination, but to force lenders to give money to high-risk borrowers for political purposes.  And Cuomo knew it.

That was the political arrogance at the heart of the collapse.  However, the CRA was more a sideshow than the actual problem.  When Congress decided that enforcement alone wouldn’t generate enough mortgages to boost their political fortunes, they had Fannie Mae and Freddie Mac eliminate the risk entirely for lenders through the purchase of the subprime loans.  Without that risk and with almost-guaranteed short-term profits of subprime loans, lenders went wild while Fannie and Freddie repackaged them as quasi-government bonds for investors.

While Democrats like Barack Obama, Harry Reid, and Nancy Pelosi keep blaming “greed” for the collapse, it was Democrats like Barney Frank and Chris Dodd building that “greed” into the system in order to drive the subprime lending market.  And it was Democrats like Frank, Dodd, Maxine Waters, and Lacy Clay who suggested that regulators like Armando Falcon were racists for blowing the whistle on the Ponzi scheme they created.

The Democrats decided, as Michelle says, that mortgages were a civil right, and wouldn’t cost the American taxpayers a dime.  How well is that working out, America?  And now, the question you have to ask yourselves is this: Do you want the nation’s economic policies run by Obama, Pelosi, Reid, Dodd, and Frank for the next two years?


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2

McCain camp, here’s your next campaign ad.

Dr.Cwac.Cwac on October 12, 2008 at 12:14 PM

CUOMO: They would not have qualified but for this affirmative action on the part of the bank, yes.

Ah, yes. Affirmative action… Fairness….

There’s a reason my wife stopped donating to her alma mater, the University of Michigan in Al-Ann Arbor.

Dr.Cwac.Cwac on October 12, 2008 at 12:16 PM

My thought exactly. When does McCain start running THIS as a campaign ad??

oldleprechaun on October 12, 2008 at 12:16 PM

This peels back the onion for the folks, a bit. So when do the criminal trials begin?

Let’s start with Clinton and work our way over to Wall Street.

Claypigeon on October 12, 2008 at 12:17 PM

Do you want the nation’s economic policies run by Obama, Pelosi, Reid, Dodd, and Frank for the next two years?

The millions of people — the “underserved,” illegals and those who made obscene profits by generating these loans — certainly want that.

And many of those who have been burned by such policies have been successfully brainwashed by the MSM to believe Osama Obama and his goons are the answer to the problem.

It defies reality.

MrScribbler on October 12, 2008 at 12:18 PM

Private profit, public risk. It’s fantastic, until all the bills come due.

RBMN on October 12, 2008 at 12:20 PM

It also would have been a wise idea not to change the accounting rules which made the housing values go artificially higher.

Now these same morons have an easy fix right in front of their noses and they are too stubborn and too stupid to see it.

Bishop on October 12, 2008 at 12:23 PM

From what I’ve read (not necessarily extensive), McCain was actually on the right side of this issue. See the Powerline entry in the Headlines. This should have been the first thing out of his mouth three or four weeks ago, and he should have spoke of nothing else. Instead, we got the unconvincing sound byte that the fundamentals of our economy are strong and a series of attempts at bipartisanship.

McCain, the pilot, seems to be in a slow-motion death spiral. When this crisis hit his campaign, he should have turned to reading his instruments rather than shooting from the hip. His instincts were terrible. As a result, this ain’t going to be a soft landing into the ocean. I hope Palin is able to parachute out with only a handful of bumps and bruises.

Shifting gears, why was McCain campaigning in Iowa yesterday? Down by double-digits and with the farmers in Obama’s ethanol-subsidizing pockets, McCain was saying that he can win there. What’s he thinking?

BuckeyeSam on October 12, 2008 at 12:25 PM

Sorry, Ed, but I think it’s much to easy to explain the financial crisis as emanating solely or exclusively from the pressure by the US government on these lending institutions.

Sure, this contributed to it. It’s absurd to think otherwise.

But the major cause (or initial one) was the extremely loose monetary policies of the central banks throughout the world. Without that cheap money available, banks wouldn’t have had the capital to give out these risky loans. Even if forced/required to do so.

As Sebastian Mallaby points out (correctly I think):

[T]he first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed’s track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times — and then be rescued by the Fed when they got into trouble.

There’s more at the Mallaby piece linked above.

SteveMG on October 12, 2008 at 12:26 PM

It’s sad that the people of my state are burdened with this idiot as their Attorney General. He should be frogmarched.

eaglewingz08 on October 12, 2008 at 12:28 PM

Tangential I know, but I think I’m seeing Obama lapel pins on the Fox pre-game idiots today but I can’t tell for sure. The CBS pre-game idiots are clearly wearing American Flag lapel pins.

Nyog_of_the_Bog on October 12, 2008 at 12:29 PM

How did that noxious little twerp Andrew Cuomo ever get to be a cabinet head anyway? Quid pro quo for his daddy Mario Cuomo’s support for Bill Clinton? In any case there is way too much nepotism in American politics. It’s gotten almost as bad as Hollywood.

MB4 on October 12, 2008 at 12:33 PM

To continue with my point, if there were no institutions willing to buy these toxic mortgages, there never would have been a market for more of them.

To be sure, Fannie and Freddie were the major player in creating these bad loans. Or more accurately, buying them.

But if there wasn’t a willingness by other financial institutions to purchase the bad debts, it would have been limited (for the most part) to just F&F.

SteveMG on October 12, 2008 at 12:34 PM

CUOMO: With the 2.1 billion, lending that amount in mortgages — which will be a higher risk, and I’m sure there will be a higher default rate on those mortgages than on the rest of the portfolio …

then how did ratings agencies and financial institutions decide it was ok to bet the farm on assets that THEY WERE TOLD would have a higher default rate?

a) executive compensation schemes that provide financial incentives to hide debt your using to try and find 14% yields for that fat bonus.

b) captial requirements at our banks and investment houses (RIP) are laughably low, with even more ridiculous loopholes.

Theres blame to go round

ernesto on October 12, 2008 at 12:37 PM

Folks… we are beyond ads now. The left wants nothing to do with the truth. They are emotionally committed to electing anyone but Bush, and Obama is serving up the kool-aid that they all want. Facts are irrelevant. Videos are useless. We are all about to be Borked, so start making your plans.

cannonball on October 12, 2008 at 12:38 PM

“Economic Justice” means what it always meant. Everyone is more equally bad off. The lefties would much rather everyone was equally impoverished, because it would be fair, than to let some individuals excel due to hard work, talent, and/or luck.

trubble on October 12, 2008 at 12:42 PM

“Economic Justice” means what it always meant. Everyone is more equally bad off. The lefties would much rather everyone was equally impoverished, because it would be fair, than to let some individuals excel due to hard work, talent, and/or luck.

trubble on October 12, 2008 at 12:42 PM

And really, wasn’t that the focus of the Chicago Annenberg Challenge? To facilitate learning in “social justice”?

Dr.Cwac.Cwac on October 12, 2008 at 12:44 PM

This peels back the onion for the folks, a bit. So when do the criminal trials begin?

Good idea. I’m sure we can find a court that can turn around an anti-Obama verdict as quickly as an Alaskan commission investigating abuse of power, right?

cannonball on October 12, 2008 at 12:44 PM

Look in the mirror, see the idiot there?

tarpon on October 12, 2008 at 12:45 PM

McCain camp, here’s your next campaign ad.

Dr.Cwac.Cwac on October 12, 2008 at 12:14 PM

And the Dems would follow with an ad of McCain blasting Christopher Cox on 60 Minutes and then recommending Andrew Cuomo to be the new SEC Chief.

flyfisher on October 12, 2008 at 12:47 PM

From NewsMax.com

1. Barney Frank Hit Over Boyfriend’s Fannie Mae Role

Critics are crying “conflict of interest” over Democratic Rep. Barney Frank’s live-in relationship with Fannie Mae executive Herb Moses while Frank was on the House Banking Committee.

Moses was Fannie Mae’s assistant director for product initiatives from 1991 to 1998.

He was also openly gay Frank’s live-in boyfriend during that time, while the Massachusetts lawmaker was on the committee that had jurisdiction over government-sponsored Fannie Mae, Fox News’ Bill Sammon reported.

Now that Fannie Mae is at the center of the recent financial meltdown, the relationship is coming under increased scrutiny.

“It’s absolutely a conflict,” said Dan Gainor, vice president of the Business & Media Institute.

“He was voting on Fannie Mae at a time when he was involved with a Fannie Mae executive. How is that not germane?

“But everyone wants to avoid it because he’s gay. It’s the quintessential double standard.”

A top Republican House aide told Fox News: “He writes housing and banking laws and his boyfriend is a top exec at a firm that stands to gain from those laws? No media ever take note?”

Frank and Moses met in 1987 and lived together in Washington, D.C., until they split up in 1998.

National Mortgage News disclosed that Moses “helped develop many of Fannie Mae’s affordable housing and home improvement lending programs.”

Critics charge that such programs led to the mortgage meltdown and the recent government takeover of Fannie Mae, according to Fox News, which noted that Fannie Mae and its financial cousin Freddie Mac “are blamed for spreading bad mortgages throughout the private financial sector.”

The ENTIRE story behind this financial crisis needs to be told.

Keemo on October 12, 2008 at 12:47 PM

The thing is, you ask people who they think is responsible for the whole mortgage meltdown and their kneejerk reaction is to blame Bush because they don’t care to get informed. And when you tell them the facts about when this all started, it kind of flies over their heads.

This is exactly what the left wants. An un-informed populace which they can control. The evidence is there, but too many people are too lazy to figure it out.

Haunchie on October 12, 2008 at 12:48 PM

Its the race blame businesses that have caused a near collapse of our economy.

From Johnson to Carter and then Clinton finishing us off, affirmative action has been driving nails in our coffin for four decades.

Booker T Washington

There is another class of coloured people who make a business of keeping the troubles, the wrongs, and the hardships of the Negro race before the public. Having learned that they are able to make a living out of their troubles, they have grown into the settled habit of advertising their wrongs — partly because they want sympathy and partly because it pays. Some of these people do not want the Negro to lose his grievances, because they do do not want to lose their jobs.

I am afraid that there is a certain class of race-problem solvers who don’t want the patient to get well, because as long as the disease holds out they have not only an easy means of making a living, but also an easy medium through which to make themselves prominent before the public.

Speakup on October 12, 2008 at 12:48 PM

Boy this Cuomo guy sure has questionable judgment.

But I don’t think McCain is going to run any commercials featuring Cuomo.

Because you can’t use a guy in your attack ads who you suggesteded would make a good SEC Chair.

Way to go, Maverick!

e-pirate on October 12, 2008 at 12:49 PM

I agree that this should be the basis for an ad, but not as an attack on Oslime-a. It should be done in the context of distancing the Bush administration from the problem and thereby lessening the criticism that McCain suffers from by being a republican. And it wouldn’t hurt to throw Bwany Fwank and the rest under the bus.

csdeven on October 12, 2008 at 12:52 PM

The thing that get me mad is, on one in government will spend a day in jail.

c3ichief on October 12, 2008 at 12:55 PM

The Democrats decided, as Michelle says, that mortgages were a civil right, and wouldn’t cost the American taxpayers a dime. How well is that working out, America? And now, the question you have to ask yourselves is this: Do you want the nation’s economic policies run by Obama, Pelosi, Reid, Dodd, and Frank for the next two years?

It will have to be a 527 that runs this ad as these are McCains friends and he shows no inclination to defend his Republican party against false charges that this was their fault.

Pandering to Dem voters is seemingly more important than placing the blame where the blame belongs.

If this horse (McCain) gets across the finish line it looks like it will be have to be drug there kickin and screamin like a stubborn DONKEY!

dhunter on October 12, 2008 at 12:57 PM

Because you can’t use a guy in your attack ads who you suggesteded would make a good SEC Chair.

Way to go, Maverick!

e-pirate on October 12, 2008 at 12:49 PM

With enemies like himself, does John McCain really need any other enemies to lose?

MB4 on October 12, 2008 at 12:57 PM

This was always planned as another entitlement, and while that’s bad enough, Democrats had to make the Sandlers and the Pritzkers billions along the way to add to the misery.

YOu can expect an expose about this in the NY Times and WaPo….

in December.

drjohn on October 12, 2008 at 12:58 PM

McCain camp, here’s your next campaign ad.

Dr.Cwac.Cwac on October 12, 2008 at 12:14 PM

Great and I agree, except McCain won’t do it.

It’ll have to be someone else.

Obama Country First!

drjohn on October 12, 2008 at 1:02 PM

And the Dems would follow with an ad of McCain blasting Christopher Cox on 60 Minutes and then recommending Andrew Cuomo to be the new SEC Chief.

flyfisher on October 12, 2008 at 12:47 PM

And then of course there is this Mother of all Inoculations -

Obama is a decent person and a person you don’t have to be scared of.
John McCain

MB4 on October 12, 2008 at 1:02 PM

McCain has to copy Obama at this juncture.

He has to cobble together a 30 minute documentary on Obama, then, now and in the future. Intertwined with this has to be the housing crisis, ACORN, the Congress both Dem and Repub, the war, corruption, earmarks, taxes, energy etc. Basically everything we have been talking about these last nine months.

Near the end he has to outline his and Palin’s punch lists of promised reforms keeping them extremely simple–with the emphasis that less government is better. In a nutshell he has to run against DC, lack of enforcement on Wall Street, the growth of government and Obama the man for his lack of judgment during his political career.

The independents can then make up their minds. He has to buy time on the five major broadcasts with extra for reruns a week before the election. It has to be a clear statement of facts not the rah, rah vote for me political crap. If he loses then so be it. It will not be because he was misunderstood or a bad public speaker. It will have been because the majority of Americans preferred Obama. Nothing to be ashamed of.

patrick neid on October 12, 2008 at 1:03 PM

Way to go, Maverick!

e-pirate on October 12, 2008 at 12:49 PM

You beat me to it.

McCain’s next idea is to put Jamie Gorelick in charge of Federal Policy for National Security as it relates to intelligence gathering and law enforcement of the Finance sector with an emphasis on integrity of leverage.

VinceP1974 on October 12, 2008 at 1:03 PM

All of this is not that difficult to understand. It is made complicated to hide the truth.

JellyToast on October 12, 2008 at 1:04 PM

Haunchie-

Anything that isn’t a 30 minute sitcom with lots of commercials flies over the heads of most Americans. They have zero interest in anything that isn’t main stream pop culture. If Oprah and Charlie Gibson like him, he must be good.

I’m telling you- I’ve entered the stages of grief and some of my worst moments are when I encounter complete and utter apathy from people I would ordinarily think had a grasp on reality. They either don’t care, or they chant the no more Bush mantra. Any other facts are irrelevant

anniekc on October 12, 2008 at 1:05 PM

speakup

great Booker t. Washington quote….

patrick neid on October 12, 2008 at 1:06 PM

Wasn’t this guy named by Mccain to head something or other?

Thus, this line of attack is not open.

We love ya, Mccain!

lorien1973 on October 12, 2008 at 1:07 PM

I knew from the get go that this financial storm started with Affirmative Action (weren’t Fannie Mae and Freddie Mac, with hip African-American names, created to help black people to get mortgages?)

But because race is such a very sensitive topic in America, nobody in a million years will mention it, especially during a presidential election.

Mass defaults is what happens when bleeding heart liberal populists speak louder than economic theory and common sense. The world is F’d right now because of American liberal do-gooders. There are more factors like corporate greed, but the seed of it is the people who wanted everybody to have a house, even those who can’t afford it, who were “victims of systematic racism” known as financial ratios…

AlexB on October 12, 2008 at 1:08 PM

Good idea Patriick. I hope McC does it.

The Democrat motto should be, “elect the arsonists for the volunteer fire dept. Woo hoo!”

Mojave Mark on October 12, 2008 at 1:08 PM

The thing that get me mad is, on one in government will spend a day in jail.

c3ichief on October 12, 2008 at 12:55 PM

And they have no idea how much this pisses everyone off!! But then again they knew how many people didn’t want the bail-out and they couldn’t have cared less.

Bicyea on October 12, 2008 at 1:13 PM

Are you guys forgetting that McCain wanted to fire Cox and replace him with Cuomo?

lodge on October 12, 2008 at 1:18 PM

Another victory for affirmative action…

BKennedy on October 12, 2008 at 1:19 PM

I guess we can now, officially, take the notion of Restitution off the table.

c3ichief on October 12, 2008 at 1:20 PM

What Cuomo did was make discriminating against someone who wouldn’t pay for their services punishable.

No financial discrimination. That’s racist.

Think about that, you genius Obama supporters, and what it could mean for you.

You cannot check someone’s credit, and have to provide good and services no matter whether you’ll get paid or not?

Jesus Christ.

drjohn on October 12, 2008 at 1:33 PM

It’s breathtaking, really, that there are voters – adults – so stupid that they might change their vote from a Republican – any Republican – to this affirmative action, community organizing, ACORN puppet, economic ignoramus Obama, because of this economic storm.

It’s like a chicken farmer buying some foxes to protect against recent chicken losses. It’s a special kind of stupid, and further evidence that despite our mocking disrespect for the MSM, they are still able to sway really stupid people quite effectively.

Jaibones on October 12, 2008 at 1:35 PM

This has been debunked:

Private sector loans, not Fannie or Freddie, triggered crisis

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that’s what triggered the stock market meltdown and the freeze on credit. They’ve specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie’s and Freddie’s financial problems.

Federal housing data reveal that the charges aren’t true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

Any responses?

AJB on October 12, 2008 at 1:37 PM

Way to go, Maverick!

e-pirate on October 12, 2008 at 12:49 PM

You beat me to it.

McCain’s next idea is to put Jamie Gorelick in charge of Federal Policy for National Security as it relates to intelligence gathering and law enforcement of the Finance sector with an emphasis on integrity of leverage.

VinceP1974 on October 12, 2008 at 1:03 PM

Big deal! Obama was ready to put Raines,Wright,Ayers, and Sarah’s “trooper” in his administration and changed his mind. You think the public remembers these “tiny goofs”?

Rovin on October 12, 2008 at 1:39 PM

The next two years? Try the next four – at least.

Midas on October 12, 2008 at 1:45 PM

Any responses?

AJB on October 12, 2008 at 1:37 PM

Yeah. If you believe that spin, you’re a f@#$ing moron.

Midas on October 12, 2008 at 1:47 PM

AJB,

You are confusing writing mortgages with buying mortgages. The essential complaint against Fannie and Freddie is that they started the ball rolling and certified so to speak. At one point when they were up on charges of cooking the books they owned 48% of all sub prime.

While it is true their share declined going forward during the hearings in 2004 they had by then given their stamp of approval on sub prime as a respectable piece of paper. It was that stamp that convinced banks and investors to go hog wild on these instruments. Had Fannie not been hitting the “ask” on all this junk for years no one would have written it.

patrick neid on October 12, 2008 at 1:50 PM

AJB on October 12, 2008 at 1:37 PM

Have you been asleep at the wheel for the past (3) weeks? Honestly, you need to open up your mind and let some facts seep in. God gave us a brain to use; in order to use it, you must allow it to open up and collect data.

Keemo on October 12, 2008 at 1:52 PM

Any responses?

First blush: if the private institutions were behind most of the risky subprime loans, why did F&F go bankrupt?

Second, as I understand it, while private institutions may have made most of the subprime loans, it was Fannie Mae (among others) that then purchased the bundled loans from those institutions.

Correct?

SteveMG on October 12, 2008 at 1:52 PM

This is interesting, from the UK Spectator magazine.

Some of it is old news, but it’s the first time I can recall reading about the ‘contribution’ of Roberta Achtenberg, Clinton’s Assistant Secretary for Fair Housing and Equal Opportunity.

As others have said above, I guess we’re all equally screwed now.

EnglishMike on October 12, 2008 at 1:53 PM

This line from the piece linked above is priceless:

In fact, by 1995 Achtenberg was actually having to rein in her zealots, issuing a clarification that the use of the phrase ‘master bedroom’ in a property advertisement was, despite its clear patriarchal and slave-owning resonances, not actually an actionable offence under the anti-discrimination laws.

EnglishMike on October 12, 2008 at 1:55 PM

AJB, your post is just a straw man. The conclusions are masked by the fact that those “private mortgage companies” who made the loans SOLD THEM TO FANNIE MAE AND FREDDIE MAC because the government was “backing” them due to the fact that Fannie & Freddie were GSEs. There is no denying that the creation of tranches from mortgage backed securities infused the financial investment pool with a viral toxic mess and we’re going to be years sorting it out. Once again, the “private companies” SOLD THEM TO FANNIE/FREDDIE and your so-called refutation is nothing but spin put out by the defenders of the Democrats for their willful complicity and downright venality in causing this crisis.

Webrider on October 12, 2008 at 2:07 PM

patrick neid on October 12, 2008 at 1:50 PM

Yep, private firms made the loans because they got a two-for. They could sell the garbage loans to
Fannie and they could avoid being taken to court for racism or classism at the same time. Private firms are not without blame, but the government both encouraged and enabled the reckless lending. Groups like ACORN actually stepped it up to outright coercion. The content of AJB’s post is incomplete at best, and I think, intentionally misleading.

forest on October 12, 2008 at 2:10 PM

F. Hayek is spinning in his grave.

Screaming, in his grave.

Stop the socialist madness!

PattyJ on October 12, 2008 at 2:20 PM

That article posted by AJB is crap. I sent an email to the author of it yesterday complaining about it.

At the very least, subprime loans are the reason Fannie and Freddie became insolvent and had to be taken over. Their original core business, A-credit loans with mortgage insurance or 20% downpayments, is profitable. Losses on those loans remain at 2-3% industrywide. It is indisputable that Fannie and Freddie substantially ramped up their purcahses of subprime whole loans and MBS in thisa decade. The growth of their portfolios exactly mirrors the explosive increase in home prices and the growth in subprime lending overall.

It is true that several non-bank mortgage companies arose that specialized in subprime loans, and they securitized their loans privately through issuers like Merrill Lynch and GMAC. But the biggest subprime lender of all was Countrywide, and virtually 100% of its loans and MBS ended up with Fannie Mae. Fannie made an exclusive deal with Countrywide that allowed C/W to reduce its prices and take over the market. What this did was compress prices in subprime, so that the loans were no longer properly priced for their default risk. Competitors had to lower prices and lending standards to maintain their market share and keep their investors happy and their workers employed. It became a race to the bottom.

I attended an event in 2000 at which the president of Freddie Mac told me that as soon as Freddie got into subprime, it would reduce prices by 200 basis points. This is not because all those borrowers with bad credit deserved lower prices or were suddnely less risky. It was because of the lower cost of capital Freddie enjoyed courtesy of its implicit government guarantee, and its market power.

rockmom on October 12, 2008 at 2:24 PM

Mavericks too busy trying to win hearts and minds before he’s kicked their asses.

Win first, make nice later.
Rush is right (as usual) we’ll have to drag his sorry ass over the line.

Iblis on October 12, 2008 at 2:25 PM

Any responses?

AJB on October 12, 2008 at 1:37 PM

Google self-pwned.

Let’s roll.

ex-Democrat on October 12, 2008 at 2:27 PM

Any responses?

AJB on October 12, 2008 at 1:37 PM

So I guess I just imagined that the GSEs collapsed. Is that you, Auntie Em?

DrSteve on October 12, 2008 at 2:41 PM

Cuomo, the Clinton administration, and Congress believed they had the right and the power to determine acceptable risk for the lenders, rather than lenders determining it for themselves in a free market.

You’re actually trying to say that it wasn’t the fault of a free market run out of control? What a huge case of wishful thinking. The mortgage industry set the lending requirements and risk. It was the fault of the federal government to remain lax as predatory lending behaviors began to emerge after 2000.

foreverright on October 12, 2008 at 2:42 PM

You’re actually trying to say that it wasn’t the fault of a free market run out of control?

Question: Do you think a GSE is a mechanism of the free market?

SteveMG on October 12, 2008 at 2:46 PM

SOCIALISM AND “REVERSE” RACISM GOT US IN THIS MESS.

WHICH IS WHY IT IS SICKENINGLY ABSURD FOR DEMOCRATS AND OBAMA TO REAP ANY REWARD FROM THE CRISIS THEIR SOCIALIST & RACIST POLICIES CREATED.

reliapundit on October 12, 2008 at 2:52 PM

Well, reliapundit, I would say that “sickeningly absurd” is a good pair of words to describe the MSM, and that’s who’s covering for the Dems.

Merovign on October 12, 2008 at 3:15 PM

You’re actually trying to say that it wasn’t the fault of a free market run out of control? What a huge case of wishful thinking. The mortgage industry set the lending requirements and risk. It was the fault of the federal government to remain lax as predatory lending behaviors began to emerge after 2000.

foreverright on October 12, 2008 at 2:42 PM

Nice try, and very convenient timing there. You do know that predatory lending did not start happening magically after George Bush was elected, don’t you? The first federal legislation to combat it was passed in 1994. Who was president and controlled Congress then? Maybe they should have done a better job.

rockmom on October 12, 2008 at 3:20 PM

Without that risk and with almost-guaranteed short-term profits of subprime loans, lenders went wild while Fannie and Freddie repackaged them as quasi-government bonds for investors.

And then along came mark-to-market.

If they’d have gotten FASB and the IRS to revise mark-to-market we’d still be living the lie.

BacaDog on October 12, 2008 at 3:24 PM

These liberal clowns like Cuomo actually believed that banks could make lots of loans to poor people with bad credit and somehow not lose any money. They thought they could simply wave a magic wand and Fannie Mae and Freddie Mac could make half of their loans “affordable” and still maintain earnings to justify a stock price of $65 a share.

rockmom on October 12, 2008 at 3:29 PM

Rockmom, you’re right on, but don’t forget the CEOs of Fannie and Freddie were busy cooking the books to make them “appear” to be profitable so they could get their huge bonuses. That had a lot to do with the upward spiral as well as everyone getting on the bandwagon with all the “cheap/free” money out there for loans. The people making the loans didn’t have to use any honest evaluation of ability to pay, Fannie/Freddie “guaranteed” the loans.

Webrider on October 12, 2008 at 3:33 PM

That had a lot to do with the upward spiral as well as everyone getting on the bandwagon with all the “cheap/free” money out there for loans.

Yes, but we can also trace it back to the monetary policies of the Federal Reserve and other central banks. Greenspan needed to throttle back on the money supply.

The problem wasn’t a lack of regulation; it was dumb regulation.

SteveMG on October 12, 2008 at 3:38 PM

It’s a gross simplification to blame this problem on affirmative action-driven lending practices (Rushspeak for blacks). There was a recent report in Ohio that indicated the bulk of their losses were from real estate investment and speculation. How many poor people do you know who flip houses or trade REITs as a sideline business?

The sheer number and size of the bad debt should tell you it couldn’t possibly be just irresponsible home buyers.

With interest rates at historical lows over the past couple of decades, leverage became a way of life for businesses as well as individuals. And government as usual saw no need to question so long as the general tide was rising and lifting everyone’s boat as they say. At the dramatic end we recall people financing their startup business on a handful of credit cards. I’ve worked for more than one company that heavily leveraged acquisitions in order to grow. And now we know that the loans you took out from a bank were being packaged and repackaged and essentially traded both long and short.

Certainly, credit card debt and personal bankruptcies are substantial and, in no way limited to the poor and working classes.

Then you add to the mix market speculation that’s always been there and a hold host of financial derivatives I don’t even understand and is it really a surprise when a bank squeeze in one region of one country has such a domino effect?

But of course it’s so much simpler to latch onto and push the notion it’s those bad afirmative action borrowers who are completely to blame.

sanguine4 on October 12, 2008 at 3:38 PM

Here, in fact, is the genesis of the problem, the ideology that created the monster.

On behalf of the Council on American Monster Relations, I wish to clarify that the subprime lending mess is not the monster that I knew.

The Monster on October 12, 2008 at 3:38 PM

But of course it’s so much simpler to latch onto and push the notion it’s those bad afirmative action borrowers who are completely to blame.

No, it’s the policies nominally designed to benefit those borrowers, which others happily exploited. And whenever someone talks about the policies, people like you make it about the borrowers so you can play The Card so we’ll be afraid to fix your messes. It’s over. We don’t care about The Card anymore.

What happened here is just another example of The Law of Unintended Consequences.

It works like this: First, some do-gooder notices a problem. Second, they come up with a scheme to fix it. Third, they get legislation to enact that scheme, which invariably is tweaked a bit by representatives of various interest groups. Fourth, they get an administrative department to implement it, often staffed by experienced employees of the very companies it’s supposed to regulate.

At each step along the way, in addition to whatever good it does to ameliorate the original problem, it has many other effects, some of which were never anticipated, much less intended, by the original do-gooders. Precisely because they did not intend those consequences, they didn’t think through how bad they could get, and are thoroughly unprepared for them when they come.

The Monster on October 12, 2008 at 3:49 PM

It’s a gross simplification to blame this problem on affirmative action-driven lending practices

Question: What caused the collapse of Freddie Mae?

Fact: Of the $3 trillion home mortages sold during the period in question, over $1 trillion of that was held by Freddie Mae.

IOW, Freddie was the big boy on the block.

To be sure, lots of other factors (as I understand it) contributed to this. Central bank monetary policies, Chinese dollars, risky and bizarre lending practices (CDS, et etera).

SteveMG on October 12, 2008 at 3:56 PM

What caused the collapse of Freddie Mae

Sorry, Fannie Mae.

Freddie’s the other guy.

SteveMG on October 12, 2008 at 3:59 PM

sanguine4 on October 12, 2008 at 3:38 PM

Yeah, it wasn’t just poor people buying houses they vouldn’t afford, it was also middle class and higher folks who were over-extending themselves and buying houses they shouldn’t have. House flippers too. And probably many others.

But what they all had in common was that they were borrowing irresponsibly, and lenders were lending irresponsibly, and apparently Fannie was bundling it all up into big piles of crap.

This was all made possible by a distorted market created by the government pushing and supporting reckless lending.

forest on October 12, 2008 at 4:10 PM

Speaking of affirmative action, it’s time to have a woman in the executive.

shaken on October 12, 2008 at 4:47 PM

Mr. Cuomo is very brave and cavalier with other people’s money. I wonder how he feels now that his own portfolio has lost so much value. I wonder if he’s making risky investments with it hoping to help someone else.

I wonder if he’s relying on politicians or financial professionals to help him figure out what to do with his money.

29Victor on October 12, 2008 at 5:11 PM

Here’s a story about a street that is now deserted because of the unqualified borrowers who suddenly got barrels of free money under this affirmative action–and then wasted it.

Note the guy at the end who doesn’t think much of the lenders or his greedy neighbors. He didn’t think of himself as a victim and now he’s fine. Oh, except for bailing out his neighbors, like we will be doing.

Cuomo’s Folly

PattyJ on October 12, 2008 at 5:56 PM

Some will look at this and say the Democrats had good intentions but I don’t say that. This is theft pure and simple. If I as the government, force you, the bank to make a loan, at a minimum my responsibility is to be sure that its a good loan and will be repaid. But affirmative action in the banking industry amounts to simple theft, they knew the bank was going to lose money, that OUR money we are talking about. That’s OUR economy we are talking about. In this instance, the Democrats were not content to tax us into the poorhouse, they wanted to bring down the financial establishment as well.

This had nothing to do with good intentions and everything to do with gaining ever more power and government control. The Democrats knew exactly where this practice would lead and bankruptcy of the financial establishments was the goal. The goal was accomplished, I’m surprised the Democrats are able to hide their glee being that it worked so well.

Maxx on October 12, 2008 at 6:37 PM

McCain need to do nothing but articulate this non-stop for the next three weeks until it sinks in. He MUST run against not just Obama but the whole Democrat controled Congress.

RobCon on October 12, 2008 at 7:02 PM

NO, NO, NO, NO and NO!

foxone on October 12, 2008 at 7:10 PM

I told you guys Cuomo had his “come to Jesus” moment and nobody listens? The reason McCain said “Cuomo for SEC” is because Cuomo realized that the spit was going to hit the fan, and actually wanted to save the market from itself. Watch psycho nancy Cramer flip out on Cuomo for trying to get his hand on the plug…
Cuomo the Communist?

rhodeymark on October 12, 2008 at 10:11 PM

Any responses?

AJB on October 12, 2008 at 1:37 PM

my response: not just a troll, but a STUPID troll

Janos Hunyadi on October 13, 2008 at 12:01 AM

It’s a gross simplification to blame this problem on affirmative action-driven lending practices (Rushspeak for blacks). There was a recent report in Ohio that indicated the bulk of their losses were from real estate investment and speculation. How many poor people do you know who flip houses or trade REITs as a sideline business?

I’m not sure it’s gross simplification. The purists (smrgolspeak for affirmative action folk) wanted anyone to be able to afford a home with 0% down and no credit check, thinking that this would right the housing inequities (smrgolspeak for low black homeownership) inherent in the market. You get this from watching Maxine Waters or Andrew Cuomo talk about what they accomplished. They knew that a higher percentage of these loans would fail.

Now, look at what Countrywide did — managed to cut a deal with Freddie to have Freddie take 100% of their “subprime” loans. What did Freddie get in return? Some sweet rates for their officers. Was Countrywide in violation of the law, or just enthusiastic about carrying out the mandates of the CRA?

The house flippers are certainly in the equation. I think the SNL skit sums up most of the players in the housing market debacle nicely — the unqualified borrowers, the house flippers, the lenders, the vulture — er, venture — capitalists. The ones they miss are the Maxine Waters’, Andrew Cuomos and Barack Obamas — government intervention and collusion with that intervention by groups like ACORN (which bankrolled Attorney Obama’s lawsuit against Citibank, for instance).

unclesmrgol on October 13, 2008 at 12:18 PM

To continue with my point, if there were no institutions willing to buy these toxic mortgages, there never would have been a market for more of them.
To be sure, Fannie and Freddie were the major player in creating these bad loans. Or more accurately, buying them.
But if there wasn’t a willingness by other financial institutions to purchase the bad debts, it would have been limited (for the most part) to just F&F.
SteveMG on October 12, 2008 at 12:34 PM

Because other financial institutions purchased the bad debts, which increased their share prices initially, investors in F&F pressured them to do the same. The investors in F&F wanted the same returns the other financial were raking in at the time.

Some background and info for others here. >

Credit Derivatives Comprise $54.6 Trillion Of Risk Among Few Banks Left Standing

The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.

How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis

Chimpy on October 13, 2008 at 4:34 PM

Comment pages: 1 2