Bailout Nation: Freddie, Fannie, and more

[Mark F. Barnes]

Certainly variable rate credit is a scam. But, I would disagree only slightly with Mark's premise that it is not the buyers' fault at all. When it comes to government bailouts of homeowners' mortgages it IS the buyers' fault. Like Mark, and like Kinkaid, I only borrowed what I could afford, NOT what the mortgage broker said I could afford. Though my first mortgage was only 10% down, I only borrowed $105,000...HALF what my friends were borrowing.

Now, when it comes to the LENDERS, blaming the customer is dodging responsibility. If I buy a car cheap, and the dealer goes under because he lost money, is that MY fault? Of course not! Lenders post the rates they will lend at. They create the down payment requirements. THEY control the documenting process! If they are uncomfortable with the documents, NO LAW IN THE UNITED STATES requires them to lend to that applicant! Anyone telling you otherwise is lying. Lenders under the gun for making ridiculously risky loans with NO documentation, and selling those loans to investors as low risk investments are looking for scapegoats. And, lo and behold, the poor and the minorities get to take their lumps once again. Hogwash!

This crisis is still brand new. Cadillac is still running their "it is good to be rich" commercials, incongruous as they seem today. It will take some time for all of us to come to grips with the fact that our excessive greed and consumerism guaranteed this outcome. Until we reach that point where we can accept our share of the blame for our own demise, some of us will continue to listen to the blame shifting by those who can afford a publicist onto those who cannot. No one forced Wall Street to invent CDOs. No one forced JPMorganChase to invent Credit Default Swaps. And, NO ONE forced wealthy investors and hedge funds to buy them!

Lay off the poor people. The greedy rich dug this grave.

Red you know we've talked about this before, I just misworded, what I meant to say it's not all the buyers fault. You can go back through here a many times where we've both talk about bogus documentation being presented, but still, it's the lenders responsibility to check that paperwork out too. Everyone signs a 4506-T Form, but these lenders aren't following up with it. They just let these people produce whatever paperwork they can and call it good. Everything has to be followed up on. The borrower that falsified documentation, and the lenders that used in-house appraisers to inflate home values, and accepted false documents, in too much of a hurry to get at that commission, are just as guilty as Barney Frank and the others that pushed all this from the top. There are a lot of players in this scam, all as guilty as the other. I really don't feel much compassion for people that claim to be victimized, when they knew damn good and well that they could afford that home, and lied their way in to get it.

[editor]

Since this is the 21st Century, will we have drive-thru bread lines and GPS locaters for the soup kitchens?

Building on your thought -- since this is America, the "poor" will weigh 400 pounds and own DVD players and flat-screen televisions with cable while demanding their government cheese.

There's a whole generation that fails to understand what real hardship is.

[Mark F. Barnes]

Since this is the 21st Century, will we have drive-thru bread lines and GPS locaters for the soup kitchens?

I have to really appreciate your levity Red......

[RedScare]

I know your position, Mark, and I did not post that as an assault on you. I was just trying to make the point...as you just did...that the buyer has a small sphere of responsibility, the failure of their own mortgage. But, everyone else has their bigger sphere of responsibility, the failure of their bank, investment firm or investment. I scoff at the wealthy crying that they were taken advantage of by the poor buyer. Cry me a river.

Building on your thought -- since this is America, the "poor" will weigh 400 pounds and own DVD players and flat-screen televisions with cable while demanding their government cheese.

There's a whole generation that fails to understand what real hardship is.

They'll learn...quickly. Remember, the Great Depression followed the Roaring 20s. Big adjustments then as now. Only difference is, back then, they did not have TV and internet to publicize the complainers. I wonder how many outraged people in Jaguars I will see before I shoot my television.

[houstonmacbro]

Pretty soon... We'll see dow 8000 or lower... Russia's stock market has lost 87% of its value. Japan... they still haven't recovered. If we have a correction down to 7000-ish... that would be 50% from the all time high... I would call it a bottom then. Right now, its still over valued...

Sounds like a buying opportunity for me.

[houstonmacbro]

Hang in there, no bread lines forming yet.

Oh Mark ... you and that sunny outlook again. I just love it.

[KinkaidAlum]

By no means am I trying to blame the poor and/or Acorn for this mess. That is beyond silly.

I believe in personal responsibility but I also believe in corporate responsibility as well. Unfortunately, it is clear that there is no such thing as corporate responsibility anymore. We need regulations and we need them NOW.

I was 100% opposed to this bailout. I called my Rep and both Senators and told them so. I didn't seem to matter.

It is so clear that special interests completely control this country at every level. That is why I laugh when people still try and say it was poor people or ACORN that caused this mess. Talk about naive. Sure, maybe someone at Acorn took some bribes and personally profitted but they are small fish. Very small fish.

[houstonmacbro]

I scoff at the wealthy crying that they were taken advantage of by the poor buyer. Cry me a river.

That's the part that gets me. These wealthy, fat-cat Ivy League-bred walking talking leverage automatons were taken avantage of by lowly, low-earning minorities, single-women, and other folks with bad credit?

Puuuhhhlleeeeze.

[editor]

It is so clear that special interests completely control this country at every level. That is why I laugh when people still try and say it was poor people or ACORN that caused this mess.

ACORN is a special interest. It is a political group that can only continue to exist if there are poor people from which it can profit, much like the Rainbow/PUSH Coalition.

Talk about naive. Sure, maybe someone at Acorn took some bribes and personally profitted but they are small fish. Very small fish.

Maybe small fish in Houston, but not everywhere. ACORN is very powerful in some cities. ACORN put pressure on banks to lend money to people who couldn't afford it. When that didn't work ACORN put pressure on local politicians and unions to put pressure on the banks to make risky investments.

I'm not saying that ACORN is the root (Root! Ha! Get it?) of this mess; there's plenty of blame to go around. I blame the homeowners first, and the banks a VERY close second. But ACORN is in that second tier of blame.

[houstonmacbro]

See, I blame the banks and then the homeowners. The banks are very smart. They know how to generate probably $10 or more from every dollar invested. So they were taking all this low income money and selling off for high profits elsewhere.

I'd expect them to be a lot smarter than that with all their high paid MBA and economists.

Poor homebuyers were out looking for the best deal and some were suckered into believing that they too could afford the American dream.

We all remember the commercials with the woman buying the house, mortgage agent delivering keys, etc. It was to elicit a good feeling and make everyone believe they belonged in a house (instead of a shabby apartment).

[editor]

I'd expect them to be a lot smarter than that with all their high paid MBA and economists.

I don't know if this is true, but it's been my observation that nothing kills innovation, prosperity, progress, and eventually an entire business faster than loading it up with MBA's. I don't have an MBA so I may be way off base, but it seems to me these people are taught to think like other people with MBA's and to only do what's written in the books without original thought. Perhaps if the business world had more people who could think for themselves instead of following the herd some would have seen that this was going in a bad direction. If you look at the most successful people in America today, and historically, most of them don't have MBA's. Heck, some of them don't even have a college education!

Poor homebuyers were out looking for the best deal and some were suckered into believing that they too could afford the American dream.

I know there were a lot of sleazy mortgage-by-phone operations that got a lot of people in trouble. Those people are all going to roast in Hell for this. But how much effort does it take to realize that if you make $400/week you cannot afford a $2,000/month mortgage payment, no matter what the nice man on the phone says?

[KinkaidAlum]

ACORN is a special interest. It is a political group that can only continue to exist if there are poor people from which it can profit, much like the Rainbow/PUSH Coalition.

Maybe small fish in Houston, but not everywhere. ACORN is very powerful in some cities. ACORN put pressure on banks to lend money to people who couldn't afford it. When that didn't work ACORN put pressure on local politicians and unions to put pressure on the banks to make risky investments.

I'm not saying that ACORN is the root (Root! Ha! Get it?) of this mess; there's plenty of blame to go around. I blame the homeowners first, and the banks a VERY close second. But ACORN is in that second tier of blame.

I once volunteered for Acorn in Houston to try and help the working poor being evicted from Allen Pkwy Village without being offered alternative options for housing. I am well aware of Acorn.

That said, Acorn is an organization of working and underclass people. The ONLY reason they were successful in lobbying for their demands was because folks on Wall Street saw PROFIT potential. It was an odd coalition of do-gooder liberals wanting to offer housing to the poor and Wall St fat cats who saw big time $$$$s. I fully believe that IF profits weren't possible this whole mess would have NEVER happened. Maybe it is the chicken and the egg, but I just do not buy that an organization of poor folks caused possibly over a TRILLION dollars of damage. Acorn was a player, but the were minor leagues if that.

[RedScare]

All of this ACORN talk is very interesting, and I think it is neat that all of those who scoff at conspiracy theories when it comes to kicking voters off the rolls or the government being in on terrorism are so quick to jump on the ACORN bringing down the world financial markets, but I haven't seen a single number to buttress the claim. Can ANYONE point me to a number, such as the number of ACORN pushed loans that went bad, or the number of poor people who have mortgages in default, or the number of CRA mortgages...anything that supports any of these theories?

I only ask for a simple reason. No one even knows how many CDOs are out there, since they are unregulated and unregistered. Some estimates put the total value as high as $62 TRILLION, 20% more than the entire wealth of the United States in 2007. I find it amazing that poor minorities, who generally buy the cheapest housing stock, could possibly have accounted for such a large percentage of the loans to bring down the entire world financial system, yet people keep swearing it is true. Does anyone have a number, even a guesstimate? I have only seen the accusations and finger pointing. Never a number.

[memebag]

ACORN is a special interest. It is a political group that can only continue to exist if there are poor people from which it can profit, much like the Rainbow/PUSH Coalition.

Maybe small fish in Houston, but not everywhere. ACORN is very powerful in some cities. ACORN put pressure on banks to lend money to people who couldn't afford it. When that didn't work ACORN put pressure on local politicians and unions to put pressure on the banks to make risky investments.

Sources?

[RedScare]

Overseas markets tanking again. Nikkei is off by more than 10%. Dow futures are also down again.

[Subdude]

Explain...? What won't survive?

That General Motors won't survive. Their sales are collapsing at the same time liquidity is drying up. It's the classic death spiral. The agencies say they have enough cash to last them through 2008, but maybe not 2009. As a stopgap GM is trying to sell their headquarters building, looking behind the cushions for spare change, etc. The knock-on effect to companies like GM is exactly what I was saying earlier about how a financial panic can turn into a depression.

Ugly day for the markets yesterday, and it's already looking bad in Asia today. I noticed one headline that it has been the worst week for stocks since 1932. I'll try go back and dig up the link. The president will be making a statement Friday morning to assure the public that the situation is being dealt with and that people should remain confident as their retirement savings vanish.

I'm guessing bank nationalizations on the order of what has taken place in the UK will be next up. Very soon.

[crunchtastic]

I'm guessing bank nationalizations on the order of what has taken place in the UK will be next up. Very soon.

There was brief mention in the papers today about ownership positions, but I think you're right on full blown nationalization. All of this is exhilirating in a weird, bad way. Sort of some dystopian prelude.

[RedScare]

All of this is exhilirating in a weird, bad way. Sort of some dystopian prelude.

I agree.

[Subdude]

There was brief mention in the papers today about ownership positions, but I think you're right on full blown nationalization. All of this is exhilirating in a weird, bad way. Sort of some dystopian prelude.

In the UK it isn't full blown as in 100% nationalization, but enough preferred stock to ensure effective control, hence effective nationalization. Americans will no doubt get all wadded up about the word "nationalization" so they will come up with some comforting sounding euphemism for marketing purposes, like "Plan to Protect the American Family". I kind of liked "conservatorship" that was used for the GSE nationalizations. It sounds very responsible and reassuring.

I couldn't quite say it is exhilarating, since it is kind of sickening, but it is certainly fascinating. One so rarely gets to see financial panics in action. There are days I'm just glued to the Bloomberg at work.

[BryanS]

From top to bottom, 14,280 at its high and 8,595 at its low, the DOW dropped 39.8%.

Still not enough correction. If we go beyond a 50% correction, then I would be concerned. I am reading that the market "is no longer responding to fundamentals." What a load of horse crap. Maybe the "fundamentals" have been wrong this whole time. The idea that we can build an ecomony on consumer spending, and endless credit is flawed. That as long as we keep our deficit spending as a percentage of GDP... OK... but some day you have to pay the bill. And we are all paying. Dearly. America's 401Ks and IRAs are imploding. The mindless selling, trading, flipping of stocks... nothing but a casino game.

In the past, when you got a mortgage - it was held by a bank, you needed to put 20% down. The lender carefully screened who you were because they wanted to make sure they would get thier money back. You needed to bring money to the table. You used to buy stocks that paid a solid dividend. And when you could not do that, you bought an S&P index fund. Only recently was oil traded on the futures market (1983). All that has given way to sliced and diced mortgage back securities, light-speed day trading, "Exchange Traded Funds" - which defeat the purpose of a mutual fund, and an oil futures market that has been abused.

I couldn't quite say it is exhilarating, since it is kind of sickening, but it is certainly fascinating. One so rarely gets to see financial panics in action. There are days I'm just glued to the Bloomberg at work.

Eventually, we can probably expect them and CNBC to cease broadcasting and go off the air...

[RedScare]

That as long as we keep our deficit spending as a percentage of GDP... OK... but some day you have to pay the bill.

That reminds me. The National Debt Clock ran out of numbers the other day. They replaced the dollar sign with a '1' to read 10,000,000,000,000. A new sign capable of $100 Trillion will be installed later. Talk about planning ahead...

Eventually, we can probably expect them and CNBC to cease broadcasting and go off the air...

Are you kidding me? CNBC is all I watch anymore. I don't even watch the boring cable news channels. All they talk about is political distractions. Like audience spikes on The Weather Channel when a hurricane forms in the Atlantic, I would bet that CNBC and Bloomberg are setting records right now.

[BryanS]

I don't know if this is true, but it's been my observation that nothing kills innovation, prosperity, progress, and eventually an entire business faster than loading it up with MBA's. I don't have an MBA so I may be way off base, but it seems to me these people are taught to think like other people with MBA's and to only do what's written in the books without original thought. Perhaps if the business world had more people who could think for themselves instead of following the herd some would have seen that this was going in a bad direction. If you look at the most successful people in America today, and historically, most of them don't have MBA's. Heck, some of them don't even have a college education!

Absolutely agree. All the "smart people" seem to have forgotten how to put their pants on in the morning... the way that the rest of America does.

I know there were a lot of sleazy mortgage-by-phone operations that got a lot of people in trouble. Those people are all going to roast in Hell for this. But how much effort does it take to realize that if you make $400/week you cannot afford a $2,000/month mortgage payment, no matter what the nice man on the phone says?

When poor people and well-educated middle class, midtown people believe "the expert" on the other end of the line. It's that easy. How much effort does it take for a midtown professional to realize that on his 80K salary that he cannot really afford that 260K townhome? I would venture to say that are far more higher income people living beyond their means than the poor. And now, it is all coming home to roost.

[houstonmacbro]

That General Motors won't survive. Their sales are collapsing at the same time liquidity is drying up. It's the classic death spiral. The agencies say they have enough cash to last them through 2008, but maybe not 2009. As a stopgap GM is trying to sell their headquarters building, looking behind the cushions for spare change, etc. The knock-on effect to companies like GM is exactly what I was saying earlier about how a financial panic can turn into a depression.

Ugly day for the markets yesterday, and it's already looking bad in Asia today. I noticed one headline that it has been the worst week for stocks since 1932. I'll try go back and dig up the link. The president will be making a statement Friday morning to assure the public that the situation is being dealt with and that people should remain confident as their retirement savings vanish.

I'm guessing bank nationalizations on the order of what has taken place in the UK will be next up. Very soon.

Okay, missed your earlier post on this. Sorry.

I agree, but let me also say this ... isn't there something useful in companies that are no longer relevant or necessary to go out of business? Think about all the companies that are no longer around, but other, better companies sprung up in their place.

I know we don't like to think about it, and all the jobs that could be lost, but instead of making ineffeicient automobiles, perhaps the 'next' GM could work with local and federal governments on better transportation machines (maglev trains for the masses, mini-cars, solar vehicles, rentable cars ... bikes?).

No business MUST exist if there really isn't a market for it to do so.

Overseas markets tanking again. Nikkei is off by more than 10%. Dow futures are also down again.

This is gonna be a great Friday.

[Mark F. Barnes]

Why? What happens Friday?

Do I need to still answer that for you this morning?

7885 and dropping

[crunchtastic]

7885 and dropping

You beat me to it by a minute, Mark. I just keep staring at the Bloomberg chart. I've never seen the line go straight down.

I think this is the new definition of watching a train wreck.

[Mark F. Barnes]

People were going to be dumping first thing this morning, hopefully it will rebound and level off around a -200, that's certain a lot less damage

[editor]

I was thinking about dumping everything this morning, but I'm holding off for now. Nothing I have seems all that horrible except Akamai. Yes, they're all down but since I'm on 30-year plan it just makes sense to hold on and ride it out.

[Mark F. Barnes]

Hey Red, when XON went 59.50 straight out of the blocks, did you go check your shorts, that was ugly for a while.?

Hang in there Wayne, we will bounce back, I am figuring how to buy a few thing when we hit bottom and level out. The ride back up will be slow, but profitable to those that make the right picks.

[KinkaidAlum]

This is beyond ugly.

I told myself not to look but I couldn't help it. Anyone wanna buy some custom furniture with zero down?

[Mark F. Barnes]

Anyone with any automaker stock better dump now, because bankruptcy will kill you and leave you without anything.