Government Intervention, Regulatory Policy, and the Financial Crisis

[sphires]

Fannie and Freddie are pure garbage, just like this video. They are tools of the banks that use these organizations and 501s as dumping grounds to hide the crazy amounts of leverage from their balance sheets. The cause of the crisis was credit default swaps and not the CDOs (although they didn't help).

Just wait for the Fed's balance sheet: bit.ly / cjzcYl

[eurohim]

Because the media tells them what to think and they don't know any better and are lead to believe that they know everything about everything because they identify with a specific political party.

[robertcgage]

Mr. Wallison name's many of the vehicles that led to our current standings, but omits the true cause the central FED bank. By making "cheep" money has taken a large part in the mess we are in now. Government has been spending like drunken sailors from 1980 onward. The FED has been their to provide all the fiat money that they needed without any restrictions. The FED bank is a privet bank an has never payed taxes or been audited in 97 years. Support HR1207 to audit the FED.

[wyominghusker]

I agree Robert, the FED needs to be abolished (pipe dream). It's only one of the many symptoms that has created this financial mess.The FED is one piece of a larger puzzle of a few elitists planning a global monetary system. Nothing happens by chance. This has been in the works for nearly 100 yrs. and the fruits of their labor will soon come to bear. These economic tremors we are witnessing are merely birth pangs to a global economic collapse.

[chopngratty]

And now Obama has Given ACORN a larger role in government and a sizable chunk of our tax dollars, quid pro quo perhaps? CRA is the ultimate root to the real estate crisis, and those responsible have been once again rewarded at the cost of so many of us who played by the rules.

Moral of this story, success and responsibility are a waste of time ?Just learn to work the system.

[ChaoticSouls]

swank if you have a open mind you will understand that government intervention has always led to more problems.

[swankrecords]

This is same tired old BS.

[davidmesaaz]

h t t p : / /tiny . cc / fm510

Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

[OlivierdeAthos]

Curious how Fannie Mae has existed since 1938, but only ran into problems AFTER the Gramm-Leach-Bliley and Commodity Futures Modernization Acts, with the major distortion occurring between 2001 and 2006. So, if the housing GSEs were distorting the market, the distortion took 70 years to become obvious? I think not.

[davidmesaaz]

Why did it happen? Because they changed the rules regarding GSE. In the 1980's to get a home loan required a 10 to 20% down payment. Which meant that it took a 10 to 20 decline in home prices for them to lose money on the loan. In the 1990's they changed it. Credit scores down payments job history yearly income were downplayed and in many ways eliminated for credit counseling. It wasn't until the 1990's that NINJA loans were created. No Job No Income No Credit No problem.

[OlivierdeAthos]

What regulations are you talking about? The GSEs don't make home loans. They buy them from other banks.

[BasicEconomics]

great job Peter!

[maggoli67]

I thought the banks didn't simply make bad decisions, but were actively encouraged/made to loan to bad risks.

[davidmesaaz]

If the banks are too big to fail they should not exist. Banks should have it in the back of their mind that they could go under they could fail. Banks participating in fannie mae invest under the assumption that either the loans be paid or they will be reimbursed by the Government. Therefore they make bad loans...

[OlivierdeAthos]

There was never a guarantee that government would cover the housing GSEs. Anybody who doubts that should look at Pres. Bush's policy release opposing HR 1427.

"The Administration opposes this requirement because it is inconsistent with current corporate governance standards and reinforces the misperception that the housing GSEs are backed by the Federal government." - G.W. Bush, May 16 2007

[davidmesaaz]

So what if there isn't any laws that explicitly say that they would be bailed out. But because they were a GSE they had a different mandate and different laws that governed them than different banks. They had fewer regulations than traditional banks. They had a debt to asset ratio of 130 to 1.

[OlivierdeAthos]

No argument there. The government had fewer risk-management regulations on them, which made their products more risky. It just irks me when the brokers at the third party banks that bought the MBSs from the housing GSEs try to blame their stupid, irresponsible behavior on government by saying there was an 'implicit guarantee' that the government would back their products.

[davidmesaaz]

There is an implicit guarantee not an explicit guarantee but a guarantee none the less.. Any bank that is that large has a government guarantee. Just months before the crisis Barney Frank called Fannie Mae fundamentally sound. Even though they had assets of 85 Billion and debts of 4 trillion I am not a financial wiz but that is way over leveraged. The regulators made political decisions and not financial ones.

[order9066]

I agree. Only the government sponsored entities were dumb enough to buy sub-prime debt. If a third party was dumb enough to buy sub-prime debt from the GSE stooges, too bad for them. The GSEs bought sub-prime debt because they knew Congress would bail them out. Implicit guarantee or not. The GSEs should be abolished. FDRs nightmare has come home to roost. Can't afford a home without a sub-prime mortgage? THEN RENT!

[davidmesaaz]

Great Video... The next time that we have a crisis Barney Frank will call Fannie Mae fundementally sound. When the crisis happens call out the "incompetent" people on wall street. Then bailout the banks in his district and ignore where the real problem is which is the Phoenix Las Vegas etc. He screwed up and now we are giving him more power...

[BasicEconomics]

Agreed 100%

[Truthpolice9698]

Right on as usual.

Good job.

[BAILOUTMONEY]

MONEY TO THE PEOPLE...... screw giving the bail out money to ANY Wall Street Co - Give the people the money, as they spend it it will fix economy, stop forclosures, get america out of debt, etc.

PLEASE join my protest to the Bail out and answer 1 question on camera: "How would you spend $297,000 dollars?" - That is the amount of BAIL OUT money given to the people....C'MON AMERICA, JOIN US IN TELLING THE GOV HOW WE COULD FIX THIS ECONOMY!....... The Fight Isnt Over YET!!

[mrcool011]

Government and banks are too big. We should never have massive banks that are too big to fail. Look at the S&L crisis and how small it was compared to now! Get rid of the Fed, keep government small and keep banks small and wall street small and we'll again have a healthy economy like we used to have.

[OlivierdeAthos]

So, what are you suggesting? We should have REGULATIONS to limit the size and composition of banks? (Something like the Glass-Steagall Act of 1933, which was repealed by the Gramm-Leach-Bliley Act of 1999?) I agree!

[davidmesaaz]

Glass Steagal seperated investment and commerical banking. Which was a regulation that Europe never had. If the elimination of this rule created the crisis why didn't the crisis start in Europe?

During the early days of the crisis Investment banks such as Bear Stearn's were merged with Commerical Banks such as Chase. This action slowed down the crisis. But under Glass Steagal this purchase would have been illegal.

[learninglemur]

One of the best articles that explains the economic crisis in essential terms is: "The Crisis in 10 Points" by Robert Stewart.

The economic bust was primarily caused by the Fed -- they forced interest rates below the natural rate of interest, fueling an unsustainable credit expansion boom that resulted in tremendous malinvestment and overconsumption.

Roger W. Garrison explains how the Fed lost its way in this paper: "Interest-Rate Targeting During the Great Moderation: A Reappraisal".

[carcabe]

Government interference in the free interactions of people(the market) is ALWAYS an attempt to cheat reality. Insane and childish. It's a game of let's pretend. Let's pretend that everyone has earned and can afford a house. Let's pretend that everyone is equally credit worthy. Let's take money from some people and give it to others so we all can pretend that they are prosperous.

You can fool reality only for so long. Then it all comes crashing down. Reality always wins. Game Over.

[MotesTV]

@carcabe "Whether we and our politicians know it or not, Nature is party to all our deals and decisions, and she has more votes, a longer memory, and a sterner sense of justice than we do." - Wendell Berry

[JMartins1981]

There's something Reaganesque about his appearance as well. :-)