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Subject: From a retired Banker on the current fiasco!!! WORTH THE
READ…no matter who you favor for President–


Written by Jack Kelly
Thursday, 18 September 2008

Lending money to people who probably won’t pay it back isn’t good
Business. If you wrap crummy loans in a clever package, they’re still
crummy loans.

Your typical Wal Mart shopper understands this. But the Masters of the
Universe on Wall Street and in Washington evidently didn’t.

Ostensibly to aid the poor, the Clinton administration and Congress
Encouraged lenders to give mortgages to poor credit risks. The
Combination of easy money and the expansion of the number of borrowers
By extending loans to poor credit risks sent housing prices through the
roof, creating the bubble whose bursting has led to this crisis.
Congress in 1999 repealed the law (the Glass-Steagall Act) that
established a bright line between commercial and investment banks.
This meant bad investments by banks could jeopardize depositors.
Wall Street created ‘derivatives’ which multiplied profits in good
times, but which also multiplied risk if there were defaults.

Most important was corruption and mismanagement at the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
corporation (Freddie Mac), which together controlled 90 percent of the
secondary mortgage market.

Once your bank has lent you money to buy a house, it can’t lend the
money again until you pay it back. But if your bank sells your
mortgage, it can make another loan right away. Without the secondary
market, most of the funds for home mortgages would dry up.

Fannie and Freddie went broke because they had bought billions of
dollars worth of subprime mortgages, on which borrowers defaulted when
the housing bubble popped. Fannie bought most of its bad mortgages from
Countrywide Financial, whose CEO, Angelo Mozilo, gave sweetheart loans
to senior executives of Fannie Mae.

Fannie and Freddie cooked their books so senior executives would be
paid millions of dollars in bonuses to which they were not entitled.
Inadequate regulation kept the book-cooking from being discovered
until the crisis had become a catastrophe.

President Bush proposed regulatory reforms in 2003 but Congress took
no action. In 2005, John McCain and three other GOP senators proposed
a strong reform bill. It died when Democrats threatened a
When the bill was reintroduced in this Congress, Sen. Chris Dodd, the
New Democratic chairman of Banking Committee, refused even to hold a
hearing on it.

Democrats opposed reform in part because they feared it would mean
fewer loans to poor people.

‘Fannie Mae and Freddie Mac are not facing any kind of financial
Crisis,’ Rep. Barney Frank, D-Mass, told the New York Times when the
Bush bill was introduced. ‘The more pressure there is on these
Companies, the less we will see in terms of affordable housing.’

  1. Reply
    P.L. Y
    April 30, 2011 at 12:10 am

    anyone can say anything in America and people will say

    *Yeah ..that is right* …this is why National Enquirer is Number ONE

  2. Reply
    April 30, 2011 at 12:22 am

    Proof that everyone is at fault.
    the people

  3. Reply
    April 30, 2011 at 1:22 am

    for Republicans to pretend like they had nothing to do with ‘de-regulation’ is like Al Qaeda pretending they had nothing to do with 9/11

  4. Reply
    John V
    April 30, 2011 at 1:37 am

    Thats the Democrat mantra, “fairness to everyone”, which meant giving people a chance to have a home, regardless of whether you could pay for it or not.

  5. Reply
    ~~Wow and Yaoi Junkie~~
    April 30, 2011 at 2:15 am

    ok i totally am not gonna read all that, but anyway america is doomed we all know that already :l this country was built off of greed, and everyone is at fault not just one or two people

  6. Reply
    April 30, 2011 at 3:00 am

    What insulted me about tonight’s debate was when McCain was asked about the economy by a person, and he told him that it was because of “Organizations like Fannie Mae or Freddy Mac, organizations you probably never heard of”

    Please don’t insult my intelligence, I’m a non home owner and I’ve heard of them. Is it just McCain’s constituency thats naive on the subject?

  7. Reply
    April 30, 2011 at 3:11 am

    Well I am a current banker working for a firm that has taken a big hit (although is not in trouble) from this and I’ll tell you this is a load of partisan nonsense.

    The measure Clinton signed was not to encourage loans that could not be paid back- it was to prevent profiling including race stopping eligible credit-worthy minorities being given loans. It in now way reduced the criteria for such loans.
    As for Bush proposing change – he was actually bragging about the increased home ownership rate that eventuated as a result.
    Blaming Democrats for a law passed by a Republican congress, and not overturned by a Republican congress with a Republican President is nonsense. The reforms Bush proposed in 2003 and 2004 actually would potentially have heightened the risk (for instance allowing home loans in sub-prime markets of 100% of value and subsidizing such high risk loans)
    The fault lies largely in irresponsible behavior by the banks and in a dramatic lack of oversight which needs to be attributed to both parties.
    John McCain did not by any stretch of the imagination propose a strong reform bill in 2005. The bill was written in 2005 by Republican Senator Chuck Hagel (who refuses to endorse McCain and whose wife endorses Obama by the way) but it was not until May 2006 that McCain added his name to the co-sponsors list. He had no part in writing the bill.
    Democrats did oppose the bill – but not the concept of more oversight. They were opposed to one particular clause in the bill. The refusal of Republican senators to compromise meant the bill never made it to the floor. McCain did not speak to the bill either on the floor or in committee. To say he proposed it is pure fiction.

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