Bloomberg to OWS: Congress caused the mortgage crisis, not the banks

posted at 2:05 pm on November 1, 2011 by Ed Morrissey

By this time, everyone should be aware of the federal policies that precipitated the housing bubble and its collapse — the push by Congress and two administrations to push higher-risk lending in order to expand home ownership, as well as the effort by Congress to get Fannie Mae and Freddie Mac to spread that risk through mortgage-backed securities.  While Wall Street made the situation worse by developing risky derivatives on those securities and failed to recognize the risk inherent in the securities themselves, the collapse wouldn’t have occurred at all had the federal government not intervened to distort lending for their own social-engineering goals.

Michael Bloomberg tried to explain that to Occupy Wall Street protesters this morning, and pointed out the contradiction between their protests and their demands:

“I hear your complaints,” Bloomberg said. “Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t gave gotten them without that.

“But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and congress certainly isn’t going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for.”

Bloomberg went on to say it’s “cathartic” and “entertaining” to blame people, but the important thing now is to fix the problem.

It’s even more important to not make the same mistake again, which is exactly what the OWS crowd wants.  They want Congress to intervene even more heavily to lower lending standards as a policy of “fairness,” which is exactly what Congress did in the late 1990s, and which started the housing bubble that nearly destroyed the financial sector in 2008.  And Investors Business Daily claims that they have the “smoking gun” that shows exactly how the government created the bubble in the first place by intimidating banks into distorted lending practices — based on a flawed study:

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies. …

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Lenders faced a nightmare regulatory threat and so began to “bend” their lending standards to demonstrate compliance.  Congress helped by authorizing Fannie and Freddie to buy up subprime mortgages at a higher rate in order to incentivize compliance.  That opened the floodgates, as Fannie and Freddie essentially ended any risk for lenders in the subprime market, and it also opened up a significant incentive for so-called “predatory lending.”  After all, why not give consumers more credit than they could handle if the original lender didn’t have to bear the cost of failure?

As a result, demand accelerated, and so did prices.  They got disconnected from their usual tie to the rate of inflation, soaring far above normal valuation.  People believed they had acquired a windfall of real equity and began either trading up or opening up home-equity lines of credit to fuel consumer spending.  In 2008 the bubble popped, and a lot of homeowners found themselves unable to make their payments as jobs disappeared and property values rapidly descended.

And that may not be over, either:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV - News), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv’s chief economist.

Should home values meet Fiserv’s expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

In June I also made the same observation, based on projecting normal inflation without the bubble from 1998 onward.  Rapid job growth could change that, but since we don’t see any indication of that on the horizon, CNN Money’s prediction is likely to come true.

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Comment pages: 1 2

Bloomberg is jumping into the GOP primary?

Vashta.Nerada on November 1, 2011 at 2:08 PM

Fannie Mae and Freddie Mac are STILL developing new programs.

Please Privitize…per Peter Schiff.

Oil Can on November 1, 2011 at 2:10 PM

According to Fiserv (FISV – News), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

LOL. 35% is nothing.

Home values went up more than 200% in some cities. Values need to fall at least 50% to get back to where they should be.

We’ll get there eventually. Could have happened by now. But with all the govt bailouts, it will take several more years. Decades even. Look to Japan in the 90s and 00s to see where we will be in the 2010s and 2020s.

angryed on November 1, 2011 at 2:10 PM

Vashta.Nerada on November 1, 2011 at 2:08 PM

He’s so short that he would have to look up to look down.

Oil Can on November 1, 2011 at 2:10 PM

And OWS response was………….?

ctmom on November 1, 2011 at 2:11 PM

Well at least someone has actually read “Reckless Endangerment” and not just the book cover or Amazon reviews. Uh, my copy? It’s on the stairs… I was going to read it at the beach, but you know, miniature golf, etc …

doufree on November 1, 2011 at 2:11 PM

correction, the democrats in congress are to blame bloomie

cmsinaz on November 1, 2011 at 2:11 PM

Bloomberg, for all of his studpidity, hits a home run here. 500 ft center field shot.

rickyricardo on November 1, 2011 at 2:12 PM

The unspoken words are spoken.

lorien1973 on November 1, 2011 at 2:12 PM

Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t gave gotten them without that.

Sure this isn’t Mitt Romney?

mankai on November 1, 2011 at 2:13 PM

Name names, Mr. Salty (Barney Frank, cough, cough). Without that this will be blamed on the generic Congress and the media will just tie it around Boehner’s neck.

JammieWearingFool on November 1, 2011 at 2:14 PM

Prices are falling with 15 year mortgages at 3.5%. What do you think will happen when that goes up to 4%, or GOD FORBID!!! 5%?

There is only one of two ways out of this:

1. Inflation where rates stay at 3.5%, home values don’t fall off a cliff, but a gallon of milk costs $8.

2. Rates are raised, milk stays at $4, home values fall 20-30% more.

Bernanke and Co are doing 1 right now. I’m not sure how much longer this will last politically.

angryed on November 1, 2011 at 2:15 PM

The Republican Congress, right?

/

Christien on November 1, 2011 at 2:16 PM

WTH? When did Bloomberg suddenly begin to make sense? Next thing you know, he’ll be telling people the whole salt consumption thing was just a joke.

Ward Cleaver on November 1, 2011 at 2:16 PM

Bloomberg’s about 100 days late and trillions of dollars short.

greggriffith on November 1, 2011 at 2:17 PM

posted at 9:50 am on September 29, 2008 by Ed Morrissey

Seven Percent Solution on November 1, 2011 at 2:17 PM

And OWS response was………….?

ctmom on November 1, 2011 at 2:11 PM

They are confused/blinded by facts, give them time to reboot and put the blinders back on.

TQM38a on November 1, 2011 at 2:18 PM

Good linky 7%

cmsinaz on November 1, 2011 at 2:19 PM

Sounds like Bloomy is getting fed up with #OWS!

Ed, have you seen this?
This is what assocracy looks like!

bloggless on November 1, 2011 at 2:20 PM

By this time, everyone should be aware of the federal policies that precipitated the housing bubble and its collapse

Ed, can you give me any examples of prominent Republicans loudly making this point? Maybe I’ve missed something, I sure hope so, because as far as I know, the only people who have been making this point over the last three years are Conservative pundits and people who write for business publications.

Has Boehner made this point? Has McConnell? Has Cantor? Have any of the Republican candidates? I hope I’m wrong, but I don’t think any of them have, because they’re too scared of being called racists. Instead, the Republicans are hoping that this is viewed as common knowledge, without them having to point it out.

Please correct me if I’m wrong. I’d love to see a quote from a prominent Republican blaming the recession on the Community Reinvestment Act. I’m afraid that you won’t be able to find one, and I’ll be pleasantly suprised if you can find me several.

ardenenoch on November 1, 2011 at 2:23 PM

Unfortunately, the plethora of information collected and perfectly summarized on this issue by Ed and others will go lost upon 90% of the American electorate.

jondun5 on November 1, 2011 at 2:23 PM

And OWS response was………….?

ctmom on November 1, 2011 at 2:11 PM

Mixed twinkles ???????

pambi on November 1, 2011 at 2:24 PM

Tunisians poke fun at Obama in assault on his Facebook page
http://english.alarabiya.net/articles/2011/11/01/174860.html

Tunisians launched an all-out assault on Barack Obama’s Facebook page this week, posting thousands of comments making fun of the U.S. president and supporting the “occupy” protests across America.

Among the comments, Tunisian Facebook users circulated “Arab Spring” jokes, such as: “Tunisia is the first country to recognize the American Transitional National Council,” referring the revolutionary upheaval in Libya and the global recognition of the Libyan transitional council.

Colbyjack on November 1, 2011 at 2:25 PM

“By this time, everyone should be aware of the federal policies that precipitated the housing bubble and its collapse — the push by Congress and two administrations to push higher-risk lending in order to expand home ownership, as well as the effort by Congress to get Fannie Mae and Freddie Mac to spread that risk through mortgage-backed securities. “

Not a single liberal with whom I have debated this point EVER acknowledges that Bush had nothing to do with this disaster. It was also the US Congress who, in 1998, shredded the provisions of the Glass-Stiegel Act, which was enacted after 1929 to prevent Wall Street from screwing around.

So, Herman Cain is right once again. The Flea Baggers should be down in front of 1600 Pennsylvania Avenue and the Capitol Building.

Jarhead68 on November 1, 2011 at 2:27 PM

About this time there was also a lawsuit against Citibank that was settled out of court. This was in Illinois and obama was one of the lawyers.

tinkerthinker on November 1, 2011 at 2:28 PM

Greenspan signed it?

John the Libertarian on November 1, 2011 at 2:28 PM

bloggless on November 1, 2011 at 2:20 PM

I like how they were chanting “shame” at themselves.

NotCoach on November 1, 2011 at 2:29 PM

And OWS response was………….?

ctmom on November 1, 2011 at 2:11 PM

White House…what White House????

….let’s head to Iowa….that’s where the Republicans are.

‘Occupy’ targets Iowa caucuses

http://www.politico.com/news/stories/1111/67314.html

OWS is nothing but a bunch of liberal activists bought and paid for by the democratic party.

Baxter Greene on November 1, 2011 at 2:30 PM

By this time, everyone should be aware

Well, if everyone had this type of awareness, we would not have Obama as President, would we??

PatriotRider on November 1, 2011 at 2:32 PM

Wasn’t all of this because of the CRA (Community Reinvestment Act) that was pushed by Chris Dodd and Barney Frank and then signed by Clinton? Please correct me if I’m wrong.

Mirimichi on November 1, 2011 at 2:33 PM

Blind squirrel, nut. . .

RedNewEnglander on November 1, 2011 at 2:34 PM

Bloomberg to OWS: Congress caused the mortgage crisis, not the banks

I’m at a loss for words.

Is Bloomberg really agreeing with US?

listens2glenn on November 1, 2011 at 2:34 PM

This is why, in part, I supported the bank “bailouts” (they were really loans and not bailouts).

After putting so much pressure on these banks to lower their standards, the government had an obligation, it seems to me, to rescue those institutions when the mortgage crisis hit.

To be sure, the banks don’t have totally clean hands here. But the evidence is pretty strong, for me, that without that pressure most of this crisis wouldn’t have taken place.

SteveMG on November 1, 2011 at 2:35 PM

That’s right Bloomberg. Up twinkles to you for that one, but when are you going to allow the owners of Zuccoti Park re-take possession of their property? Your girlfriend’s on their board, I hear.

TXUS on November 1, 2011 at 2:38 PM

Is Bloomberg having a sober moment? Not drunk on the Kool-Aid.

Mirimichi on November 1, 2011 at 2:38 PM

“Sources point to Obama as a possible starting point to the domino affect that lead to the housing crises we are now facing. Check the provided links and judge for yourself.

“In a 1995 case known as Buycks-Roberson v. Citibank, Obama and his fellow attorneys charged that Citibank was making too few loans to black applicants and won the case. As one commentator noted in May 2008, legal “successes” such as this were probably responsible for the sub-prime mortgage crisis of 2007 AND 2008. That is, banks were not loaning to blacks whose credit was poor. When the law forced them to lend money anyway, the inevitable collapse occurred.”

Obama had a part in the lawsuit that started the government on a course of forcing lenders to give more loans to those who had poor credit. Lending companies were forced to come up with imaginative ways of fulfilling the quota that was required. Sub-prime lending was born as a result. The mortgage crises was forecast by many who were able to look beyond the quota.”

This is from The Obama Files.

http://theobamafile.com/obamaacorn.htm

tinkerthinker on November 1, 2011 at 2:38 PM

Home values went up more than 200% in some cities. Values need to fall at least 50% to get back to where they should be.

angryed on November 1, 2011 at 2:10 PM

That’s why new home sales should go up because no one wants to buy an existing home when they can get a comparable new one at the same or better price.

Vince on November 1, 2011 at 2:39 PM

the Clinton Democrats own the Mortgage Crisis. check this NYT article from 1999:

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?pagewanted=1

maineconservative on November 1, 2011 at 2:40 PM

A good book to read that tells the tale Reckless Endangerment Bloomberg could hand out copies to the OWS protesters

aLoha Tim on November 1, 2011 at 2:42 PM

This is why, in part, I supported the bank “bailouts” (they were really loans and not bailouts).

After putting so much pressure on these banks to lower their standards, the government had an obligation, it seems to me, to rescue those institutions when the mortgage crisis hit.

To be sure, the banks don’t have totally clean hands here. But the evidence is pretty strong, for me, that without that pressure most of this crisis wouldn’t have taken place.

SteveMG on November 1, 2011 at 2:35 PM

CRA was the catalyst for the bubble. But the thrust of the bubble came from banks themselves without any push from the govt.

CRA didn’t make banks do this.

Hollister – Despite making only $14,000 a year, strawberry picker Alberto Ramirez managed to buy his own slice of the American Dream. But his Hollister home came with a hefty price tag – $720,000.

A year and a half later, Ramirez has defaulted on his loan, and he’s hoping to sell the house before it’s repossessed. And according to many housing advocates and civil rights groups, Ramirez is not alone. As mortgage foreclosures rise, many minorities are suffering.

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

angryed on November 1, 2011 at 2:42 PM

It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t gave gotten them without that.

Spoken like a true politician. Mayor Waffles.

GarandFan on November 1, 2011 at 2:44 PM

That’s why new home sales should go up because no one wants to buy an existing home when they can get a comparable new one at the same or better price.

Vince on November 1, 2011 at 2:39 PM

And that is happening. Whatever little action there is in residential real estate is mainly new houses. But that’s because prices are being lowered continually by builders.

angryed on November 1, 2011 at 2:44 PM

I’m not going to give the Republican Congress and Bush a complete pass on this.

To be sure, the seeds of the crisis took place before Bush came into office. But they (mostly) sprouted during his Administration and they did almost nothing to stop it.

Yes, Barney Frank et al. stopped a number of measures that the Bush White House wanted to put into place. But I think the White House could have been much more aggressive in fighting him back.

On my list of culprits, Bush et al. are on it. Not at the top but definitely there.

SteveMG on November 1, 2011 at 2:45 PM

Did that just come to him, or did someone explain it?

Mr. Grump on November 1, 2011 at 2:46 PM

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

angryed on November 1, 2011 at 2:42 PM

There has to be more to this story than what you’ve posted. The banks were forced to make horrible loans but this is beyond horrible.

Vince on November 1, 2011 at 2:50 PM

Paging bayam…

Del Dolemonte on November 1, 2011 at 2:54 PM

They are both responsible. To give irresponsible banks a pass is ridiculous…not to mention the Fed as well.

Pablo Honey on November 1, 2011 at 2:56 PM

tinkerthinker on November 1, 2011 at 2:38 PM

….like to add this on to your post if you don’t mind:


Explosive Video, Fannie Mae CEO calling Obama and the Dems the “Family” and “Conscience” of Fannie Mae

http://www.youtube.com/watch?v=usvG-s_Ssb0&feature=related


….Obama and his fellow democrats took great pride in the sub-prime mess they helped create….


Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

http://www.youtube.com/watch?v=_MGT_cSi7Rs&NR=1

…..and the democrats did everything they could to cover it up.
If you didn’t go along…you were labeled a “racist”…..


EVIDENCE FOUND!!! Clinton administration’s “BANK AFFIRMATIVE ACTION” They forced banks to make BAD LOANS and ACORN and Obama’s tie to all of it!!!

http://www.youtube.com/watch?v=ivmL-lXNy64

….but hey,who cares about the facts…
………let’s head to Iowa and hunt down Republicans.
It’s all the OWS liberal activists know how to do.

Baxter Greene on November 1, 2011 at 2:56 PM

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

angryed on November 1, 2011 at 2:42 PM

Clinton and Janet Reno and Barney all threatened the banks if they didn’t go along with CRA.

And a side note-as Rush Limbaugh pointed out on today’s show, O’bama as a “lawyer” in Chicago (a position where he averaged 18 hours a week for something like 8 years?) in all that time only filed 2 lawsuits.

One was against CitiBank for redlining.

Del Dolemonte on November 1, 2011 at 2:57 PM

angryed on November 1, 2011 at 2:42 PM

So the question is why would a bank want to loan money to someone manifestly unable to pay it back? Does that make any sense?

Now you have two choices: the first is that the loan managers were certifiably insane.

If you reject that hypothesis, then you have to assume they were sane, but if so, what explains their actions and the larger actions of the banking community?

Think of it this way: Let’s say you were going to play Texas Hold’Em and I was going to bankroll your play. You keep what you win, and I pay off what you lose. Now under those conditions, do you bet conservatively or recklessly? Do you draw to an inside straight or you toss in your cards.

You see, the basic problem is that the banking system always operated under the assumption that they WOULD get bailed out if things got really bad. They were too big to fail and they knew it. Therefore, they acted rationally under the “rules of the game.”

The current push for intrusive regulation does nothing to change that dynamic. Keeping with the poker analogy for a moment, now consider if you lose money and in response the bank instead of withdrawing its support from your lousy play says: “Okay I’ll continue to bankroll your game, but now I’m going to scrupiously monitor your every bid, call, raise, or fold; I’m going to tell you exactly how you should play every hand and you have to follow my rules.” You would still lose under that scenario because in the end, you financier is not as good as poker player as you are and there is no set of rules that can cover every that happens in a poker game.

In fact, in the end you’ll probably decide that you’re through playing the game.

PackerBronco on November 1, 2011 at 3:00 PM

It was also the US Congress who, in 1998, shredded the provisions of the Glass-Stiegel Act, which was enacted after 1929 to prevent Wall Street from screwing around.

Jarhead68

“Shredding” Glass-Stiegal had little, if anything, to do with the collapse.

xblade on November 1, 2011 at 3:01 PM

So the question is why would a bank want to loan money to someone manifestly unable to pay it back? Does that make any sense?

Because they sold the bonds off to investors.

Pablo Honey on November 1, 2011 at 3:01 PM

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

That’s a good story, thanks.

As I said, there’s no doubt that with the wide availability of cheap credit – thanks to central banks here and abroad and from China – that banks (not just in the US but worldwide) were quite reckless in lowering their lending standards.

Lots of factors contributed to it. But I’ll agree with Bloomberg here that most of it – not all but most – was the result of pressure from Congress to lower their standards.

On my list of culprits, banks are certainly there. Just not at the top.

SteveMG on November 1, 2011 at 3:02 PM

A good book to read that tells the tale Reckless Endangerment Bloomberg could hand out copies to the OWS protesters

aLoha Tim on November 1, 2011 at 2:42 PM

Reckless Endangerment by Gretchen Morgenson and Joshua Rosner is an excellent book about the financial crisis and it is now available in paperback.

http://www.amazon.com/Reckless-Endangerment-Outsized-Corruption-Armageddon/dp/0805091203/ref=sr_1_1?s=books&ie=UTF8&qid=1320173718&sr=1-1

Every single Occupier who is arrested should be required to write a book report on Reckless Endangerment before they are released from jail. The book report will help with their rehabilitation and is the surest way to reduce the recidivism rate among the OWS kids.

wren on November 1, 2011 at 3:03 PM

“Shredding” Glass-Stiegal had little, if anything, to do with the collapse.

Yep, it was the shadow banks that failed. (Lehman, Merril, Bear Stearns)

Though getting rid of GS made things worse…but it wasn’t the cause.

Pablo Honey on November 1, 2011 at 3:03 PM

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity.

That is exactly the point that was being made on HotAir three years ago.

Another point made at that time was the default rate doubled from ~1.5% to ~3%. The result was a loss of confidence in the secondary market and everyone tried to bail out at the same time only to discover that no one wanted to buy the unknown risk. The mark to market rules required everyone to mark down the MBS they held even though many were still producing an income stream. When that happened everyone called in their Credit Defaults only to discover no one had the cash to cover the call. Those CDOs didn’t ‘insure’ against default, they magnified the risk to an even higher level. That’s when the ‘counter party risk’ shut down the credit market. No on trusted anyone else to be solvent enough to engage in equities trading. Everyone panicked. Desperate for cash no one trusted the counter party’s collateral.

So here we sit, waiting for Greece to default, with banks world wide left holding an empty sack.

Skandia Recluse on November 1, 2011 at 3:03 PM

This was government corruption on an unimaginable scale:

http://www.publicopiniononline.com/ci_11631591

In 1998, Fannie and Freddie officers cooked the books in order to maximize bonuses: James A. Johnson, chairman and CEO, $966,000 salary, $1,932,000 bonus; Franklin D. Raines, chairman and CEO-designate, $526,154 salary, $1,109,589 bonus; Lawrence M. Small, president and COO, $783,839 salary, $1,108,259 bonus; Jamie Gorelick, vice-chairman, $567,000 salary, $779,625 bonus; J. Timothy Howard, EVP and CFO, $395,000 salary, $493,750 bonus; Robert J. Levin, EVP, Housing and Community Development, $395,000 salary, $493,750 bonus.

In 2001, the Bush Adminstration tried to raise a red flag about Fannie and Freddie.

– In 2003,
Freddie Mac admitted it understated $5 billion of earnings and was fined $125 million.

– In 2003, Sen. Christopher Dodd, Connecticut Democrat and chairman of the Banking Committee, and Sen. Kent Conrad, North Dakota Democrat, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee.

– In 2004,
chief executive Richard F. Syron received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.

– In 2004,
an accounting scandal emerged at Fannie Mae, resulting $6.3 billion restated earnings.

– In 2004,
both companies were ordered to raise their core capital level by 30 percent, limiting their ability to purchase mortgages.

– In 2004

at a House committee hearing, Barney Frank said “…safety and soundness is not an issue.” Maxine Waters said, “Franklin Raines has done a wonderful job.”


– In 2005,
19 Republicans sign on to radically revise Fannie and Freddie, demanding oversight.

– In 2005,
a Republican reform passed the Senate Banking Committee on a party-line vote, only to be blocked by Democrats from passing the full Senate.

– In 2006,
John McCain spoke on the Senate floor concerning the need to reform Fannie and Freddie.

– In 2006,
top executives at Fannie Mae were accused of manipulating the company’s books to maximize their bonuses.

– In 2007,
Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, while the company’s stock lost half its value in 2007.

– In 2007,
subprime mortgages triggered the current financial market crisis. Foreclosures in the subprime housing market (i.e., mortgage holders with poor credit ratings) is the direct result of 12 years of government policy that has forced banks to make bad loans to un-creditworthy borrowers.

– In March 2008,
both companies were given permission to add $200 billion into the mortgage market.

In In July 2008,
Congress authorized the Treasury Department to provide equity to Fannie and Freddie.

– In August 2008,
shares of FNM and FRE plummeted amid rumors that the two companies may need to be rescued by the government. Stocks rebounded after the Treasury denied it planned to provide capital to the companies.

– In September 2008,
both Fannie and Freddie were taken over by the government with top management dismissed.

Recipients of Fannie and Freddie Campaign Contributions, 1989 to 2008. (Note: Barack Obama is the number two recipient at $126,349, but was only been in the Senate for the last three years. The only names not on this list are Sarah Palin’s and Bill Shuster’s.)

The government used their influence and power to push these destructive policies and now the idiots at OWS…want to give them more power.

Baxter Greene on November 1, 2011 at 3:04 PM

Because they sold the bonds off to investors.

Pablo Honey on November 1, 2011 at 3:01 PM

Yes, and why did the investors decide it was a good risk?

The point is that the whole structure was maintained because in the end, everyone knew the government would come to bailout the participants, so yes, the next fool took on the risk and passed it on to another fool higher up the chain, and the last fool, the one at the top of the chain, was the goverment.

Well, let me amend that: the government then passed the risk onto the taxpayers, born and yet unborn and we’re left holding the bill.

PackerBronco on November 1, 2011 at 3:04 PM

They want Congress to intervene even more heavily to lower lending standards as a policy of “fairness,” which is exactly what Congress did in the late 1990s, and which started the housing bubble that nearly destroyed the financial sector in 2008.

Stuck on stupid.

ted c on November 1, 2011 at 3:05 PM

Yes, and why did the investors decide it was a good risk?

Rating agencies said they were. They were rated AAA…same a treasury bonds. Everything was great until it wasn’t. Treasury bonds paid nothing and they had to park their money somewhere.

BTW they are another culprit…ratings agencies.

Pablo Honey on November 1, 2011 at 3:07 PM

The issue seems to be clearly joined: Government social engineering in the marketplace is extremely dangerous. The Right wants less of it, and the Left wants more of it. We are at a fork in the road, and the direction we take will be decided in November 2012.

GaltBlvnAtty on November 1, 2011 at 3:08 PM

Lots of factors contributed to it. But I’ll agree with Bloomberg here that most of it – not all but most – was the result of pressure from Congress to lower their standards.

On my list of culprits, banks are certainly there. Just not at the top.

SteveMG on November 1, 2011 at 3:02 PM

It’s the government acting from the bottom pushing poor credits risks up the chain and then it’s simultaneously the government acting from the top of the chain giving investors every indication that the government would be around to mitigate the risk.

PackerBronco on November 1, 2011 at 3:08 PM

“Well… raise my rent!!!”

Did Mayor Doofus actually say something right for a change???

Ah, not to worry, he’ll be pressured into a “clarification” and retraction once the uberLib NYC pols get a whiff of what he said.

Always Right on November 1, 2011 at 3:11 PM

the government acting from the bottom pushing poor credits risks up the chain and then it’s simultaneously the government acting from the top of the chain giving investors every indication that the government would be around to mitigate the risk.

Sure, the moral hazard problem; but it was also recklessness on the part of banks in lending credit.

The world was awash in cheap credit and the banks were competing with one another in giving it out.

With the belief that government would be their safety net.

SteveMG on November 1, 2011 at 3:15 PM

Considering the source (Bloomberg), I’m surprised he somehow left easy access to handguns off of his blame list.

molonlabe28 on November 1, 2011 at 3:18 PM

ZOMG! Who Occupied Bloomberg??

I haven’t heard him make this much sense in years.

MikeknaJ on November 1, 2011 at 3:18 PM

Was there someone out there who didn’t already know this?

MikeA on November 1, 2011 at 3:19 PM

Rapid job growth could change that

and so could a phalanx of flying monkeys.

hillbillyjim on November 1, 2011 at 3:21 PM

So the question is why would a bank want to loan money to someone manifestly unable to pay it back? Does that make any sense?

PackerBronco on November 1, 2011 at 3:00 PM

Yes it makes sense.

2 reasons

1. Everyone was convinced that real estate would continue going up 20% a year forever. If the guy couldn’t pay the loan back, no problem, the house would be worth $820K in no time and he could sell and walk away with $100K profit. That was the mentality.

2. About 30 seconds after that loan was closed, it was sliced, diced repackaged as part of a CDO and sold off to someone else. Who cares if he can pay it back, it’s someone else’s problem now.

angryed on November 1, 2011 at 3:24 PM

Of course by using the power of Congress…..they were able to play out their corrupt scheme knowing that the taxpayer would be on the hook…not them.


Blame Fannie Mae and Congress For the Credit Mess

http://online.wsj.com/article/SB122212948811465427.html?mod=googlenews_wsj#printMode

The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the “arrangement” with the GSEs at a committee hearing on GSE reform in 2003: “Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing.” The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.

…and due to Fannie/Freddie (with the government at their backs) pushing the banks out of the way…they were able to lie and manipulate their ratings:


Fan and Fred: Frauds by Design?

Posted By Tom Blumer On January 8, 2010 @ 12:00 am In . Positioning, Money, Politics, US News

http://pajamasmedia.com/blog/fan-and-fred-frauds-by-design/?print=1

In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks–which had long before been driven out of the prime market by Fannie and Freddie’s government-backed, low-cost funding. The vast majority of these MBS were rated AAA, because the rating agencies’ models assumed that the losses that are incurred by subprime and Alt-A loans would be within the historical range for the number of high-risk loans known to be outstanding.
But because of Fannie and Freddie’s mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. …

This government sponsored scheme was directed and supported by activists such as Obama and his democratic allies that yelled “racism” every time Republicans called for Fannie/Freddie to be reined in.

Baxter Greene on November 1, 2011 at 3:27 PM

And let’s not kid ourselves. Congress/CRA is to blame. Banks are to blame. But most of all it’s the idiot home buyers who are most to blame. Someone making $50K a year and buying a $750K house with 5000 sq ft knew fully well he could never pay the money back. But he didn’t care. It was live in the now, buy buy buy. Who care if my ARM goes from $1000 a month to $5000 a month, I’ll worry about it then. Now off to the BMW dealer to test drive the latest model.

angryed on November 1, 2011 at 3:27 PM

angryed on November 1, 2011 at 3:27 PM

…now those same people who signed the dotted line claim they were victims of “predatory loans”…..
……………you know…it’s somebody else’s fault they bought Houses and Cars they could not afford.

Now give me a few more credit cards and everything will be alright.

Baxter Greene on November 1, 2011 at 3:32 PM

The regulatory missive, which had the effect of law, advised lenders to bend “customary” underwriting standards for minority homebuyers with poor credit.

“Applying different lending standards to applicants who are members of a protected class is permissible,” it said. “In addition, providing different treatment to applicants to address past discrimination would be permissible.”

The banks weren’t forced to make idiotic loans? Yes, they were. And banks that had not been guilty in the past of any actual racial discrimination in lending were told to start discriminating on racial grounds — so long as the unqualified borrowers were members of a “protected class” (i.e. black or hispanic).

And it’s probably just a happy coincidence that those “protected” classes of unqualified borrowers who received taxpayer-guaranteed home loans were also core constituencies of the Democratic party.

They didn’t call Clinton the “first black president” for nothing.

AZCoyote on November 1, 2011 at 3:34 PM

Let’s not forget Andy Cuomo’s role in this!

pain train on November 1, 2011 at 3:34 PM

I dunno. Seems everywhere you look there are dirty hands.
http://hosted.ap.org/dynamic/stories/U/US_MF_GLOBAL?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-11-01-14-49-04

a capella on November 1, 2011 at 3:35 PM

…now those same people who signed the dotted line claim they were victims of “predatory loans”

Alot of them were.

Pablo Honey on November 1, 2011 at 3:36 PM

I don’t get it – where’s ernesto?

Sharke on November 1, 2011 at 3:36 PM

Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t gave gotten them without that.

It was terrible policy because it caused an economic collapse. The fact that some of the people who got loans they didn’t qualify for have kept up their payments is irrelevent.

single stack on November 1, 2011 at 3:37 PM

The most damaging blow was the repeal of Glass/Steagall…

voiceofreason on November 1, 2011 at 3:37 PM

this makes me think he’s running.

on a third party line.

and he could re-elect obama as a result.

reliapundit on November 1, 2011 at 3:38 PM

Isn’t it a bit late for Bloomberg to try to explain the truth to people he’s encouraged to occupy a private park? Isn’t it a bit late for Bloomberg to make this plea after business near Hippie Zero have begun laying off people because of a drop in business? Bloomberg has no credibility on this matter. He may be speaking the truth, which he is, but this out-of-control movement has been encouraged by city leaders with an agenda.

madmonkphotog on November 1, 2011 at 3:40 PM

…now those same people who signed the dotted line claim they were victims of “predatory loans”

Alot of them were.

Pablo Honey on November 1, 2011 at 3:36 PM

No they weren’t. They knew exactly what they were doing.

Mortgages aren’t all that hard to understand. You borrow $X at Y interest rate. If you make $50K and you borrow $750K there’s nothing predatory about it. If anything the predator is the borrower who knows fully well they will never pay that money back. These same “victims” lived in their houses for years virtually rent free.

angryed on November 1, 2011 at 3:42 PM

I don’t get it – where’s ernesto?

Sharke on November 1, 2011 at 3:36 PM


Right here.

angryed on November 1, 2011 at 3:44 PM

I dunno. Seems everywhere you look there are dirty hands.
http://hosted.ap.org/dynamic/stories/U/US_MF_GLOBAL?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-11-01-14-49-04

a capella on November 1, 2011 at 3:35 PM

And now it’s time to play… Name That Party!!

(brought to you by your transparently transparent good friends at Associated Press)

hillbillyjim on November 1, 2011 at 3:46 PM

The banks weren’t forced to make idiotic loans? Yes, they were. And banks that had not been guilty in the past of any actual racial discrimination in lending were told to start discriminating on racial grounds — so long as the unqualified borrowers were members of a “protected class” (i.e. black or hispanic).

And it’s probably just a happy coincidence that those “protected” classes of unqualified borrowers who received taxpayer-guaranteed home loans were also core constituencies of the Democratic party.

They didn’t call Clinton the “first black president” for nothing.

AZCoyote on November 1, 2011 at 3:34 PM

How do you explain the $50K a year white guy buying $750K houses in gated suburban communities? There more of that going on than the $20K a year black guy buying $150K houses in urban areas.

Like I said, CRA started the ball rolling on the madness. But then the banks took it and ran with it. Yes, without CRA none of this would have happened. But to say all of it is CRA’s doing is just not true.

angryed on November 1, 2011 at 3:46 PM

…now those same people who signed the dotted line claim they were victims of “predatory loans”
Alot of them were.

None of them were. They’re victims of their own greed, nothing more.
Like many people I could easily have gotten one of what are now called predatory loans but I knew I couldn’t afford a house costing a couple of hundred thousand dollars. So I figured out what I could afford and I found a small cottage on an acre of land 16 miles from town that had been on the market for 3 years and I was the first person to look at.
Now I’m glad I didn’t get greedy.

single stack on November 1, 2011 at 3:49 PM

Anyone that can read should get a copy of Reckless Endangerment and if you can’t read pick up the audio version. If you have a short attention span here are the bullet points:

* Clinton admin pushed for more housing for minorities and the poor. They did this by threatening banks via the various government depts. including justice.

* Johnson (the head of Fannie Mae, head of Mondale’s campaign and roommate of Bill Clinton) insured that Fannie only be answerable to the Congress and not the Office of Federal Housing Oversight.

* Johnson then bribed Congress to continue pushing low income housing, ignore reserve requirements and then thoroughly demagogued anyone that had any reservations about the safety of such programs.

* Johnson enlisted the help of ACORN in pushing for these changes. ACORN was actually against Fannie in the beginning, but after several grants from Johnson they became full fledged partners.

* Fannie bought off most of the academics to back up claims that banks were discriminating on the basis of race. The science was settled.

* Banks being forced to take risker loans bundled them and sold them. They also insured them (see AIG).

* Fannie kept a majority of federal subsidies and instead of them passing the savings on to customers gave it executives as bonuses.

* Warnings of a bubble were ignored by Congress.

* Recession hits –> BOOM!

ReaganWasRight on November 1, 2011 at 3:54 PM

I think Mark-2-market accounting gets overlooked (again) as an influence on creating the derivatives. And I also think that people have to realize that yes, there was too much money floating around in the derivatives–but the derivatives were simply the most vulnerable to collapse.

Mark-to-market said that you could only count the assets that the market said you had. Thus, normally well-behaved MBS-es, which can recover the dings of defaults over time by appreciation at the more secure layers, had to be counted at their current market assessment.
The swaps were just an IOU that you could count as assets to cover the shortfall in your assets. These commodities kept MBS-es marketable!

Were there no derivatives, MBS-es would have been toxic a lot sooner, and the government would find financial institutions less and less amiable about taking guaranteed losses.

The swaps were only needed for the volatility of the instrument and the instrument was mainly volatile as a result of the bad loans layered into the otherwise stable instrument.

Axeman on November 1, 2011 at 3:55 PM

But to say all of it is CRA’s doing is just not true.

But Mark Levin said it was!

Pablo Honey on November 1, 2011 at 3:56 PM

So, have bayam and the usual assorted nitwits who deny this shown up to refute it yet?

I thought not…

He/they will be back in the near future pretending this never came up, of course, still claiming its all the bank’s fault and how leftism is so awesome.

Midas on November 1, 2011 at 3:57 PM

They’re victims of their own greed, nothing more.

Many were misled and didn’t understand about ARM’s resetting.

People are dumb and these crooked salesmen took advantage of it.

Pablo Honey on November 1, 2011 at 3:57 PM

Many of the mortgages that went bad — and especially those that blew up the financial markets — were Alt-A, loans given to people with good credit ratings. There is no question that the feds contributed to the problem with their ownership society mess. But you can’t leave the banks out of it. There was enormous pressure on lenders to keep feeding the mortgage-backed securities market.

The financial crisis was a systematic problem in which we all — investors, buyers, sellers and banks participated. There may be about three people who are completely blameless. Trying to focus on any one factor — banks or a 17-year-old early-Clinton era memo — misses the bigger picture.

Hal_10000 on November 1, 2011 at 4:00 PM

So, have bayam and the usual assorted nitwits who deny this shown up to refute it yet?

I thought not…

He/they will be back in the near future pretending this never came up, of course, still claiming its all the bank’s fault and how leftism is so awesome.

Midas on November 1, 2011 at 3:57 PM

bayam showed up last week on a similar thread here, and when I posted a clip of Bill O’Really’s incindiary live interview with Barney Frank, bayam simply pretended that that entire interview was nothing more than O’Really Propaganda. This despite the fact that the interview was done live, and the clip was unedited.

I then posted another clip with no O’Really, just Congressional Democrats from years past angrily denying (in a Congressional Hearing) that there were problems with Fannie and Freddie.

Since bayam couldn’t Spin that clip, it simply disappeared from the thread. That’s the same as believing that said clip doesn’t exist.

Strange parallel universe those Leftists have.

Del Dolemonte on November 1, 2011 at 4:05 PM

The financial crisis was a systematic problem in which we all — investors, buyers, sellers and banks participated. There may be about three people who are completely blameless. Trying to focus on any one factor — banks or a 17-year-old early-Clinton era memo — misses the bigger picture.

Hal_10000 on November 1, 2011 at 4:00 PM

Who were the 3 people who were blameless? I’m guessing none of them have a D after their name.

Del Dolemonte on November 1, 2011 at 4:07 PM

Many were misled and didn’t understand about ARM’s resetting.

People are dumb and these crooked salesmen took advantage of it.

Pablo Honey on November 1, 2011 at 3:57 PM

A lot of people were misled into thinking that if they got in too deep, the government had their back.

If someone is too dumb to understand the term Adjustable Rate Mortgage, and the term resetting, they are probably too dumb to afford a house.

Yes, anyone who gave the go-ahead to a loan to one of these high-risk borrowers is culpable, but tremendous pressure was applied for a lot of these loans to go through, or Uncle Sam was gonna make their lives miserable and their livelihoods perilous.

hillbillyjim on November 1, 2011 at 4:12 PM

Many were misled and didn’t understand about ARM’s resetting.

People are dumb and these crooked salesmen took advantage of it.

Pablo Honey on November 1, 2011 at 3:57 PM

No people are greedy. They bought what the salesman was selling knowing they’d never actually have to pay for it.

angryed on November 1, 2011 at 4:15 PM

Strange parallel universe those Leftists have.

Del Dolemonte on November 1, 2011 at 4:05 PM

I can totally picture them sitting there with their fingers in their ears yelling, “LALALALALALALALA-I’M-NOT-LISTENING-LALALALALA…”

Midas on November 1, 2011 at 4:17 PM

I’ve signed more mortgage notes than I can remember. Plenty of them were ARMs. And on each one it stated very clearly in black and white what my interest rate would be initially and what the interest rate would be at reset, what the initial payment would be and what the maximum reset payment would be.

The notion that somehow they were misled is ludicrous. Unless the person signing didn’t understand English, there is no way they could not understand what they were signing. And if they signed without understanding English, well, shit, sorry not going to feel sorry for an illegal who was “taken advantage” of.

angryed on November 1, 2011 at 4:18 PM

The financial crisis was a systematic problem in which we all — investors, buyers, sellers and banks participated. There may be about three people who are completely blameless. Trying to focus on any one factor — banks or a 17-year-old early-Clinton era memo — misses the bigger picture.

Hal_10000 on November 1, 2011 at 4:00 PM

That’s just patently ridiculous.

Interesting that you pointedly exclude politicians in your attempt to divert the blame to everyone else, whether they participated or not- why is that?

Most people, so far as I can tell, didn’t ‘participate’ but are picking up the tab for the bailout – maybe that’s your definition of ‘participate’? That those of us who didn’t have anything to do wtih the problem get to now turn over more money to soften the blow for those who *continue* to be the problem (and apparently want to do it again)?

Midas on November 1, 2011 at 4:22 PM

Hot Air covered this, and showed who is to blame, long ago on September 18, 2008:

Politically, the pertinent question is this: Which candidate foresaw the credit crisis and tried to do something about it? As it turns out, John McCain did — and partnered with three other Senate Republicans to reform the government’s involvement in lending three years ago, after an attempt by the Bush administration died in Congress two years earlier. McCain spoke forcefully on May 25, 2006, on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005 (via Beltway Snark):
Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal. *** I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”
In this speech, McCain managed to predict the entire collapse that has forced the government to eat Fannie Mae and Freddie Mac, along with Bear Stearns and AIG. He hammers the falsification of financial records to benefit executives, including Franklin Raines and Jim Johnson, both of whom have worked as advisers to Barack Obama this year. ***

LASue on November 1, 2011 at 4:33 PM

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