Republicans continue to lie about class responsibility for the Great Recession

A flashback from Barry Ritholtz offers fine research and reporting from a traditional publisher of American journalism.

Probably need bulletproof one-way glass to view this lineup

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…

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 from 2004 to 2006.

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…

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don’t lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

It’s a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more…

Private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren’t subject to federal regulation or the CRA, originated most of the subprime loans.

Though this piece from Goldstein and Hall is over seven years old, the facts, data, the truth of the analysis hasn’t changed. Conservative politicians enabled private capital to ramble through giant unregulated loopholes in the sacred name of profit.

Banks and legitimate mortgage loan firms overwhelmingly continued to live up to responsible practices. Sleazy operations – often working through storefront phonies – did just about whatever they pleased. Lied, cheating, stealing from clients and taxpayers alike.

Unless your state legislature repaired what a corrupt conservative Congress invented, those storefront mortgage lenders are still out there, still cheating, still making irresponsible profits. That’s the case here in New Mexico. It’s likely to be the same where you live, too.

Thanks, Barry Ritholtz

Countrywide – a cautionary tale with a happy ending

What does it take to hold your powerful bosses accountable if they try to bully you out the door?

Documents, e-mails, a former deputy district attorney as your lawyer — and a never-say-die approach.

Such was the lesson learned by Michael G. Winston, a former executive at the Countrywide Financial Corporation. Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages…

Mr. Winston’s story provides a glimpse into how business was done at Countrywide at the height of the subprime craziness — and how assiduously Angelo R. Mozilo, the company’s fallen leader, worked to quash dissent in the ranks. Mr. Winston had the audacity to question Countrywide practices. Mr. Mozilo was not pleased and, before long, Mr. Winston was marginalized and later dismissed.

Mr. Winston, a prominent executive in the field of organization management, is a rarity among corporate whistle-blowers. Most of them get run over by their former companies. A fascinating detail in his case: after providing to the opposition his list of witnesses, which included former colleagues who had also been let go by Bank of America, the bank hired several of them back. Then they testified against him.

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Factbox: Conclusions of U.S. financial crisis panel

CFO of Goldman Sachs on TV monitor on the floor of NY Stock Exchange during testimony

A divided U.S. investigative panel released on Thursday a wide-ranging assessment of what caused the financial crisis that rocked global markets from 2007-2009.

The 10-member Financial Crisis Inquiry Commission was created by Congress to deliver a bipartisan report on the origins of the crisis, but it failed to deliver a consensus view.

The main report was endorsed only by the commission’s six Democratic members, undermining its impact as the post-crisis Dodd-Frank banking reforms of 2010 are being implemented.

I hope no one out there in citizen-land actually expected Republicans to participate in naming their primary sources of income as bearing responsibility for the financial crisis and the Great Recession.

Below are the main points of the…majority report:

* We conclude this financial crisis was avoidable.

* We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.

* We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.

* We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.

* We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.

* We conclude there was a systemic breakdown in accountability and ethics.

* We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.

* We conclude over-the-counter derivatives contributed significantly to this crisis.

* We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.

If you’d like to peek at the beginnings of analysis, try this article over at

Foreclosures slow down as systematic document flaws exposed

The foreclosure machinery that has forced millions of Americans out of their homes is beginning to seize up as some lenders and their lawyers are accused of cutting corners in their pursuit of rapid home repossessions.

Evictions are expected to slow sharply, housing analysts said, as state and national law enforcement officials shine a light on questionable foreclosure methods revealed by two of the country’s biggest home lenders in the last two weeks.

Even lenders with no known problems are expected to approach defaulting homeowners more cautiously and look more aggressively for resolutions short of outright eviction…

GMAC has acknowledged legal missteps in processing mortgages, and JPMorgan Chase has acknowledged the possibility of missteps, and both have suspended all foreclosures in the 23 states where they need a court’s approval. That’s 56,000 in the case of Chase alone; GMAC declined to provide a number…

The federal government has been the majority owner of GMAC since supplying $17 billion to prevent the lender’s failure during the financial crisis…

Taxpayers provided the capital; but, no one kicked a sufficient number of Bush-era pickpockets out of management.

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No-money-down mortgages reappear – what a concept?

When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down…

“Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — “perform worse than those that do not.”

An analysis filled with logical fallacies.

But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

Say “lax underwriting” out loud several times and genuflect in the direction of Countrywide Financial. Or as the process is referred to in community banking, “liar loans”.

Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.

This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”

At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.

“If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”

Wealth constraints are the all-American bugaboo. The wealthy of this nation and their flunkies in the Republican and Democrat parties fear someone with little or no income qualifying for the benefits they claim as a god-given imperative. They apply to everything from welfare to unemployment insurance, healthcare to mortgages.

RTFA. Anecdotal tales, analysis that skips here and there through current economic ideology.

I have a few articles like this one in the hopper. Worth reading, reflecting upon. Political bushwa is already knee-deep in preparation for the coming elections; so, any pretense at solving the remainder of the disaster we acquired from decades of Democrats collaborating with Republican ideology about removing oversight and regulation, freeing up the market for thieves and other scumbags, is gone by the boards.

The Party of NO is to become the Tea Party, Young Guns, John Wayne in a hip-hop video and, of course, the kindly caring face of liars and hypocrites like John McCain and Sarah Palin playing the lead roles in Little Poorhouse on the Prairie.

Senate votes to bar mortgage kickbacks, liar loans

The Senate on Wednesday voted to end mortgage kickbacks and so-called “liar loans,” two lending practices that played a role in the meltdown of the subprime mortgage market.

By a 63-36 vote, the Senate adopted a measure that would prohibit mortgage lenders from offering incentives to brokers who steer customers into more-expensive loans.

The amendment, which was added to a sweeping rewrite of financial regulations, also would end “liar loans” by requiring lenders to verify that borrowers have enough income to repay their mortgages.

Both practices were at the root of the subprime meltdown and the Great Recession. Both practices encouraged by the Republican-controlled government whose greatest delight was kissing corporate financial butt.

Liar loans allowed consumers to qualify for loans that they could not possibly repay. In exchange for a slightly higher interest rate, borrowers could opt to simply state their income or other assets rather than waiting for lenders to verify them.

Such incentives, known as “yield spread premiums,” averaged nearly $1,900 per transaction and could be found in 85 percent to 90 percent of all loans originated by brokers in the years before the subprime crisis, according to a Harvard University study.

Some borrowers were steered into risky, high-interest subprime loans even if their credit was good. BasePoint Analytics, a company that monitors real-estate fraud, estimates that 14 percent of subprime borrowers could have qualified for a regular loan with more favorable terms.

If you happened to notice – Congressional Republicans voted in favor of continuing this kind of theft and corruption.

Goldman-Sachs pimp exec bragged about his untouchable power!

Daylife/Reuters Pictures used by permission

Fabrice Tourre, the Goldman Sachs executive accused by the Securities and Exchange Commission of making misleading statements about toxic investments, had a grandiose view of his own position in the financial system, according to emails the SEC said he wrote.

An email by Tourre, according to the SEC’s complaint against him and Goldman Sachs, proclaimed, “More and more leverage in the system. The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab(rice Tourre)…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!!” (Sic)

That email was sent to a friend of Tourre’s, according to the SEC complaint.

His department was also of the view that CDOs were in terrible shape, according to the SEC. A Feb. 11, 2007 email that the complaint says was sent to Tourre by the head of Goldman Sachs’ structured production correlation trading desk allegedly said, “the cdo biz is dead we don’t have a lot of time left.”

The SEC said Goldman Sachs and Tourre misled investors about a synthetic collateralized debt obligation, or CDO, that hinged on the performance of subprime residential mortgage-backed securities…

The CDO, called ABACUS 2007-AC1, was structured and marketed by Goldman in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.

According to the SEC, Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that John Paulson, a major hedge fund manager, played in the portfolio selection process, and the fact that the hedge fund had taken a short position against the CDO. Neither Paulson nor his hedge fund company were named as defendants in the SEC complaint.

These crooks all play by the same rules – or in the case of this recession – play by the absence of rules and oversight. Something the Republican Party is about to say NO to, once again. The last thing they want is for the real money in this land to be hampered by living up to the law.

It was the same at all levels. The first example I personally witnessed of how the system had been corrupted – I watched a young married couple, both undocumentados, buying a single-wide with no credit history and 10% down. The trailer farm salesman promised them “no problem” and as he explained to me – a group of trailer dealers owned the storefront mortgage company which would make the mortgage and sell the paper to someone like Countrywide.

No state rules or oversight required for the storefront mortgage company. Still isn’t any, btw.

These cruds at Goldman-Sachs did the same thing on a global scale. Only they had their Republican buddies from the Contract on America handling things for them in the federal government. Deals that weren’t worth the paper they were written on – floated merrily downstream – no oversight, no regulators worth their salt would actually look at their dealings.

FBI probes finance giants for fraud

The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and AIG – and their executives – as part of a broad look into possible mortgage fraud.

Earlier this month, FBI director Robert Mueller told Congress that 1,400 individual real estate lenders, brokers and appraisers were now under investigation in addition to two dozen corporations.

The FBI currently has 26 pending corporate fraud investigations involving subprime lenders,” Kelko said. Previously, CNN has reported that Countrywide is part of the investigation.

And the beat goes on. The beat goes on…

Global Banks are as rotten as their foundations

From pubs in London to bars in New York, everyone is asking the same question: Why is this financial crisis different? The answer is simple albeit not sexy. The rot has set in.

The world’s investment banks are basically houses built on pillars of money. Sometimes those pillars are cash, often bonds; these days pillars are made up of derivatives, swaps, options and other frighteningly complex instruments.

But these pillars are the strength that supports not only the bank itself, but also its debts and liabilities. Under technical rules the pillars have to be transparent and of a certain quality, so that investors know just how well propped up the bank is. In layman’s terms — everyone can tell “the bank is safe!” If the pillars remain strong — the bank stays standing.

What has happened is that the rot has got into the pillars and no-one noticed. If they were wooden it would be worms. The very financial instruments that make up the core of the banks are questionable.

They have been questionable for over a decade. And people did notice.

A certain portion of government and legislators were bribed and “influenced” by lobbyists. Some of the remainder were so-called deregulators like John McCain who refused to institute licensing and regulations for storefront mortgages – which became, by the way, what everyone terms sub-prime.

And the rest were simply ignorant gits.
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