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Economic Fall Guys and Meanderings

Posted 8 Apr 2010 at 21:09 PM by spanner
Updated 8 Apr 2010 at 21:22 PM by spanner (Removal of computer picture identification)

A Thought: Since the school system will no longer teach History or Civics of the USA and the Constitution, perhaps the Church should begin voluntary teaching of these two important classes.

In a feeble attempt to remove blame from Bill Clinton and the Democratic Left Leaners, the committee wannabes point fingers away from their party trying to secure the November elections.

U.S. Panel sifts subprime wreckage, blames Greenspan

April 7, 2010
WASHINGTON (Reuters) – The wreckage of Wall Street's subprime mortgage machine was laid bare on Wednesday by a U.S. Congressional panel that pointed the finger at Alan Greenspan for not stopping it from running out of control. The former Federal Reserve chairman -- once revered as the oracle of economic wisdom -- defended his legacy before the panel, which also heard a former Citigroup (C.N) executive say he had warned of the subprime danger. The Financial Crisis Inquiry Commission kicked off three days of hearings with a look at securitization of subprime mortgages, in which risky home loans were bundled and resold in the secondary debt market. At the peak of America's real estate bubble, Wall Street firms were securitizing huge amounts of subprime loans*, putting bad assets on financial institutions' books and unmanageable debts on the shoulders of many homeowners. It all came crashing down two years ago, triggering a devastating wave of foreclosures, paralysis in capital markets, and the worst financial crisis in generations. Since then, the market for subprime mortgage debt has virtually vanished. "The Fed utterly failed to prevent the financial crisis," said commission member Brooksley Born at a hearing where Greenspan, other regulators and banking executives testified. In reply to Born and other commission members, Greenspan, who is 84 and retired as Fed chairman in 2006, said: "Did we make mistakes? Of course, we made mistakes ... "Managers of financial institutions, along with regulators, including but not limited to the Federal Reserve, failed to comprehend the underlying size, length and potential impact" of market risks that contributed to the 2007-2009 crisis.
But former Citigroup executive Richard Bowen told the panel that he alerted senior managers to the dangers. "I warned extensively of the scope of the problems identified, beginning in June 2006," said Bowen, formerly a senior vice president at CitiMortgage Inc. He said he e-mailed former U.S. Treasury Secretary Robert Rubin, then chairman of Citigroup's executive committee, in November 2007, warning of "the risks of loss to the shareholders of Citigroup." He said he also requested an investigation. More on this will come out on Thursday, when the commission is scheduled to hear from Rubin himself, as well as former Citigroup CEO Chuck Prince. The government pumped $45 billion in emergency capital into Citigroup during the crisis. On Friday, the commission will hear from former executives and regulators of housing finance giant Fannie Mae (FNM.N). The commission's hearings were not expected to unearth revelations that significantly alter the tale of the crisis, which is fairly well understood by now. But its proceedings could add momentum to a push for a regulatory overhaul. The U.S. House of Representatives approved a sweeping financial reform bill in December. The Senate will begin debate soon on legislation backed on March 22 by a key committee. (For a Factbox on Senate Banking Committee Chairman Christopher Dodd's bill, double-click on [ID:nN15206128]) President Barack Obama, building on his healthcare reform victory, is targeting fast action on financial reform. "Everyone gets the urgency of this, two years on. I think they get it on the Hill. I think they get it in the business community," Neal Wolin, deputy secretary of the U.S. Treasury, told a White House briefing on Wednesday.

Obama is expected to push regulatory restructuring as his top domestic priority when Congress returns on Monday from its Easter vacation. Administration officials said a bill could get through the Senate and to the White House by late May. The question of Wall Street executive pay surfaced at the hearing, with commission Vice Chairman Bill Thomas grilling former Citigroup executive Thomas Maheras over the tens of millions of dollars he made while working there. "You made a lot of money. Do you believe now, looking back on that situation, that you earned all of it?" Thomas asked. Maheras said he was "paid very handsomely," but that it was consistent with market norms and reflected Citi's strong performance, at least until 2007 when he got no bonus. Maheras was co-CEO of Citi Markets & Banking when he left the firm in October 2007. A year later, the U.S. Government had to pump $45 billion into Citi to keep it from collapsing, in part because of problems with collateralized debt obligations, a business line Maheras was closely involved with. "I did lose a lot of sleep," Maheras said, adding though that Citi's big losses came after he had left the firm. Thomas said, "But you were there as part of the problem." Maheras said, "I was." The Senate bill ranges across many topics, including the problem of Wall Street executives receiving huge paychecks, even when their firms lose money, and the issue of how to fix the broken securitization business. Critics have accused loan originators, bundlers and others along the securitization chain of undermining loan discipline, obscuring risks behind complex debt structures and reaping huge fees and profits in the process.
At the commission hearing, Patricia Lindsay, a former executive at mortgage firm New Century Financial Corp, made clear her view about which end of the complicated subprime mortgage securitization chain drove its expansion. "The growth in the subprime industry grew because of the securitizations on Wall Street ... Loans were just sold in droves to Wall Street. There was a huge demand for the product ... Because of the returns," she said. The SEC, addressing such concerns, on Wednesday proposed making mortgage-backed securities issuers disclose more about underlying loans and keep 5 percent of the risk in some cases. In related news, Goldman Sachs (GS.N) rebutted allegations on Wednesday that it had benefited unduly from government help and bet against its own clients during the crisis. The Wall Street firm said in its annual shareholder letter that it did not intentionally "bet against" securities in the mortgage market during the crisis, dismissing suggestions that it unfairly made money by placing bets against its clients. * Community Reinvestment Act
Cleaned up for easy read
* The Community Reinvestment Act (CRA), enacted by Congress in 1977 (12 U.S.C. 2901) and implemented by Regulations 12 CFR parts 25, 228, 345, and 563e, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate. In this section of the web site, you can find out more about the regulation and its interpretation and information on CRA examinations.

* The Community Reinvestment Act (or CRA,Pub. L 95-128, title VIII, 91 1147,12U.S.C. & 2901) is a United States Federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.
* Clinton Administration Changes of 1995. In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 byBear Stearns. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.
* George W. Bush Administration Proposed Changes of 2003 In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since thesavings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae andFreddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen.
* The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 22. The regulation was substantially revised in May 1995, and was most recently amended in August 2005.

Evaluation of CRA Performance
The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities. Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner. CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).

* Definitions:
Subprime: What Does Subprime Loan Mean?
A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

Investopedia explains Subprime Loan
Subprime loans tend to have a higher interest rate than the prime rate offered on traditional loans. The additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments over the life of a longer term loan.

However, getting a subprime loan could still be a good idea if the loan is meant to pay off a higher interest debt (such as credit card debt) and the borrower has no other means for payment.

The specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not value a borrower's risk in the same manner. This means that a subprime loan borrower has an opportunity to save some additional money by shopping around.

Prime: What Does Prime Mean?
A classification of borrowers, rates or holdings in the lending market that are considered to be of high quality. This classification is placed on those borrowers that are deemed to be the most credit-worthy and the prime rate is the rate that a lender will lend to its high quality borrowers.

Investopedia explains Prime
Lenders use a credit scoring system to determine which loans a borrower may qualify. A major variable in this credit scoring system is a borrower’s FICO score (which may range from 300 to 850). In general a borrower with a FICO score greater than 620 is considered to be eligible for a prime loan; however, other variables, such as past payment history, bankruptcy, foreclosure and the loan-to-value ratio are also considered.

Since a lender’s incentives are not always aligned with a borrower’s incentives, it is important for consumers to shop for the best loan at the best rate.

CRA: What Does Community Reinvestment Act - CRA Mean?
An act of Congress enacted in 1977 with the intention of encouraging depository institutions to help meet the credit needs of surrounding communities (particularly low and moderate income neighborhoods). The CRA requires federal regulators to assess the record of each bank or thrift in helping to fulfill its obligations to the community. This record will then be used in evaluating applications for future approval of bank mergers, charters, acquisitions, branch openings and deposit facilities.

Investopedia explains Community Reinvestment Act - CRA
Because the percentage of "CRA loans" that a mortgage lender originates or purchases in the secondary market is important, CRA loans tend to trade at a premium price in the secondary market. Generic packages of loans are frequently searched by traders looking to find overlooked individual CRA loans within the package which can be extracted and sold for a premium, independent of the entire package .

Emergency Economic Stabilization Act (EESA) of 2008

What Does Emergency Economic Stabilization Act (EESA) of 2008 Mean?
One of the bailout measures taken by Congress in 2008 to help repair the damage from the subprime mortgage crisis. The act gives the Treasury Secretary the authority to buy up to $700 billion of troubled assets and restore liquidity in financial markets. The Emergency Economic Stabilization Act (EESA) was originally created and proposed by Henry Paulson.

Investopedia explains Emergency Economic Stabilization Act (EESA) of 2008
The original form of the EESA was rejected by the end of September of 2008 and was therefore revised. A revised version was passed the following month. Proponents of the plan felt that it was vital to minimize the damage done to the economy by the mortgage meltdown, while detractors felt that the cost of the plan was way too high.

McFadden Act: What Does McFadden Act Mean?
Federal legislation that gave individual states the authority to govern bank branches located within the state. This includes branches of national banks located within state lines. The act was intended to allow national banks to compete with state banks by permitting them to open branches within state limitations.

Investopedia explains McFadden Act
The McFadden Act was passed by Congress in 1927. It was modified in 1994 by the Riegle-Neale Interstate Banking and Branching Efficiency Act, which allowed banks to open limited service bank branches across state lines by merging with other banks. This act repealed the earlier provision within the McFadden Act prohibiting this practice.

What was the Glass-Steagall Act and Why Did Clinton Change It?
In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, "improper banking activity", or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other. We will take a look at why the GSA was established and what led to its final repeal in 1999. Reasons for the Act - Commercial Speculation
Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

Effects of the Act - Creating Barriers
Senator Carter Glass, a former Treasury secretary and the founder of the U.S. Federal Reserve System, was the primary force behind the GSA. Henry Bascom Steagall was a House of Representatives member and chairman of the House Banking and Currency Committee. Steagall agreed to support the act with Glass after an amendment was added permitting bank deposit insurance (this was the first time it was allowed).

As a collective reaction to one of the worst financial crises at the time, the GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled. Banks were given a year to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds. Financial giants at the time such as JP Morgan and Company, which were seen as part of the problem, were directly targeted and forced to cut their services and, hence, a main source of their income. By creating this barrier, the GSA was aiming to prevent the banks' use of deposits in the case of a failed underwriting job.

The GSA, however, was considered harsh by most in the financial community, and it was reported that even Glass himself moved to repeal the GSA shortly after it was passed, claiming it was an overreaction to the crisis.

Building More Walls
Despite the lax implementation of the GSA by the Federal Reserve Board, which is the regulator of U.S. Banks, in 1956, Congress made another decision to regulate the banking sector. In an effort to prevent financial conglomerates from amassing too much power, the new act focused on banks involved in the insurance sector. Congress agreed that bearing the high risks undertaken in underwriting insurance is not good banking practice. Thus, as an extension of the Glass-Steagall Act, the Bank Holding Company Act further separated financial activities by creating a wall between insurance and banking. Even though banks could, and can still can, sell insurance and insurance products, underwriting insurance was forbidden.

Were the Walls Necessary? - The New Rules of the Gramm-Leach-Bliley ActThe limitations of the GSA on the banking sector sparked a debate over how much restriction is healthy for the industry. Many argued that allowing banks to diversify in moderation offers the banking industry the potential to reduce risk, so the restrictions of the GSA could have actually had an adverse effect, making the banking industry riskier rather than safer. Furthermore, big banks of the post-Enron market are likely to be more transparent, lessening the possibility of assuming too much risk or masking unsound investment decisions. As such, reputation has come to mean everything in today's market, and that could be enough to motivate banks to regulate themselves.

Consequently, to the delight of many in the banking industry (not everyone, however, was happy), in November of 1999 Congress repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks. Furthermore, the Gramm-Leach-Bliley Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities.

Although the barrier between commercial and investment banking aimed to prevent a loss of deposits in the event of investment failures, the reasons for the repeal of the GSA and the establishment of the Gramm-Leach-Bliley Act show that even regulatory attempts for safety can have adverse effects.

Gramm-Leach-Bliley Act of 1999: What Does Gramm-Leach-Bliley Act of 1999 - GLBA Mean?
A regulation that Congress passed on November 12, 1999, which attempts to update and modernize the financial industry. The main function of the Act was to repeal the Glass-Steagall Act that said banks and other financial institutions were not allowed to offer financial services, like investments and insurance-related services, as part of normal operations.

The act is also known as Gramm-Leach-Bliley Financial Services Modernization Act.

Investopedia explains Gramm-Leach-Bliley Act of 1999 - GLBA
Due to the horrific losses incurred as a result of 1929's Black Tuesday and Thursday, the Glass-Steagall act was created originally during the 1930s in order to prevent bank depositors from additional exposure to risk associated with stock market volatilities. As a result, for many years, banks were not legally allowed to act as brokers. Since many regulations have been instituted since the 1930s to protect bank depositors, GLBA was created to allow the financial industry to offer more services.

How am I affected by the Community Reinvestment Act and fair lending laws?
The Community Reinvestment Act (CRA) encourages federally insured banks and thrifts to meet the credit needs of their entire community, including low– and moderate-income residents.
The Home Mortgage Disclosure Act (HMDA) and its implementing regulation, provide the public with loan data that can be used to assist in: determining whether financial institutions are serving the housing needs of their communities; distributing public-sector investments to attract private investment to areas where it is needed, and identifying possible discriminatory lending patterns.
The Fair Housing Act (FHA) prohibits discrimination based on race, color, religion, national origin, sex, familial status, or handicap, in all aspects of residential real estate transactions, including, but not limited to the sale, retail, appraisal, and financing of dwellings. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a consumer or commercial credit transaction based on race, color, religion, national origin, sex, marital status, age, receipt of income from any public assistance program or the exercise, in good faith, of any right under the Consumer Credit Protection Act.

What Are the Origins of Freddie Mac and Fannie Mae?

By Rob Alford

Mr. Alford is a student at the University of Washington and an HNN intern.

Editor's Note: This article was published in 2003. In recent months, the nation's two largest mortgage finance lenders have come under increasing scrutiny at the hands of Congress, the Justice Department and the Securities and Exchange Commission (SEC). The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nicknamed Freddie Mac, have operated since 1968 as government sponsored enterprises (GSEs). This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of the Federal Government. These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight. A recent accounting scandal at Freddie Mac that resulted in the replacement of three of the company's top executives has led to mounting concerns over the privileged status these GSEs enjoy in the marketplace.
Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.
Initially, Fannie Mae operated like a national savings and loan, allowing local banks to charge low interest rates on mortgages for the benefit of the home buyer. This lead to the development of what is now known as the secondary mortgage market. Within the secondary mortgage market, companies such as Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government. It is this ability to borrow at low rates that allows Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge.
For the first thirty years following its inception, Fannie Mae held a veritable monopoly over the secondary mortgage market. In 1968, due to fiscal pressures created by the Vietnam War, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a GSE, generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight as well as implied government backing. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. Currently, Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market.
GSEs such as Fannie Mae and Freddie Mae, with their combination of private enterprise and public backing have experienced a period of unprecedented financial growth over the past few decades. The current assets of these two companies combine for a total that is 45 percent greater than that of the nation's largest bank.

On the other hand, their combined debt is equal to 46 percent of the current national debt. It is this combination of rapid growth and over leveraging that has lead to the current concerns of Congress, the Justice Department and the SEC with regards to the financial practices of these GSEs.
Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. In the event that there was some sort of financial collapse within either of these companies, U.S. Taxpayers could be held responsible for hundreds of billions of dollars in outstanding debts. A recent investigation by the Justice Department and the SEC into the accounting practices at Freddie Mac revealed accounting errors in the amount of 4.5 to 4.7 billion dollars and resulted in the termination of three of the company's top executives. Ongoing investigations by Congress, particular the House Finance Services subcommittee that oversees the activity of GSEs, will determine the future role of Fannie Mae and Freddie Mac and the secondary mortgage market that they dominate.
ObamaCare is a violation of Church and State
Bill of Rights, Amendment 1 - Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Obama knows that no one in the media nor talk radio or Congressman/women and Senators will never reveal the real truth about the National Healthcare plan and the intent of or behind or the motivator of nationalism. Obama's pastor is Jeremiah Wright, the pastor of Trinity United Church of Christ and the core belief of any Church of Christ is extended from the Presbyterian which is extended from the Catholic Church. These all have in commonality the belief in Amillennialism or the belief that we are now within the 1,000 year reign of Christ and this they use in abstract, symbolic, or relative truth. Relative Truth imposes whatever you believe to be truth then to you it is truth. This is taught and believed in all the school systems and this is why you have opposition within the public school systems to study the Bible. The Amillennists do not want the truth to be discovered so they have kidnapped the truth and hold it captive. These are trying to "clean up" the world from sinners either by conversion or by death, they hold the same virtue as that of the Muslim extremist
And would have no problem, when they are convinced by "their" leader. If they were of Christ they would want the Bible taught in the public arena as Christ ascribed unto, but because they have the Amillenniest view they are aligned with others of the environment movers and shakers and those who basically want a "free" ride.
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