"If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions." (Article)
WC - Fannie Mae and Freddie Mac gathered 388 billion in AAA rated mortgages either by owning or guaranteed. The securities being backed by these mortgages were doing fine as long as real estate appreciated. When they failed, the house came down.
If there wasn’t a Fannie Mae or Freddie Mac or if they had been better regulated, there would be no market for these low rated mortgages and therefore none would have been made.
In 2004 these two organizations had an accounting scandal. Legislation was created (co-sponsored by John McCain) to create regulation that would have forced them to diversify out of these mortgages, yet the Democrats tied it up on committee and it was never voted on in the Senate.
The Democrats had very close ties to the lobby groups representing Freddie and Fannie so much that 3 of the biggest recipients of their money were Chris Dodd (1st), Barack Obama (2nd) and Hillary Clinton (12th) and Sen. Obama has only been in the Senate for 3 years!
“Socializing risk, while privatizing profit.” – Peter Wallison
Tuesday, September 23, 2008
Saturday, September 20, 2008
Is Sen. Obama the “ACORN Candidate”?
Cutting your teeth in Chicago politics is tough. Luckily the young lawyer had help. According to some (Blog) the Senator was introduced to ACORN by a person named Madeleine Talbot who still works for them. Sen. Obama was not only council but a trainer for the organization that has been linked to voter registration fraud. (Article)
Later the Senator served on the board of the Woods Fund of Chicago which gave grants to ACORN. This of course is not unusual except that this organization continues to be the center of investigations that they file bogus voter registration cards for people like Dick Tracy! Although they are “non-partisan” he has stated they were key to his 2004 primary race for Senator.
With many states tightening up ACORN could be the difference for the Senator.
© WithComment.com
Later the Senator served on the board of the Woods Fund of Chicago which gave grants to ACORN. This of course is not unusual except that this organization continues to be the center of investigations that they file bogus voter registration cards for people like Dick Tracy! Although they are “non-partisan” he has stated they were key to his 2004 primary race for Senator.
With many states tightening up ACORN could be the difference for the Senator.
© WithComment.com
Thursday, September 18, 2008
Cash is King!
The recent problems with Lehman Brothers and A.I.G. insurance is a liquidity problems and not a solvency problem. It is estimated that A.I.G. has a trillion dollars in assets and needs 75 billion in cash to weather this financial storm. To put this in perspective, if you have a house worth $100,000 dollars and you would need $7,500 to keep it. This is confusing isn’t it? The reason they can’t get a loan is the same as Lehman Brothers and that is sub prime loans.
Sub prime loans are loans to less qualified individuals and companies, but let’s go back and look at the industry of mortgages.
In the 1980’s a security was developed that was backed by mortgages through Fannie Mae and Freddie Mac corporations. Until recently the U.S. Gov. had said it would back these securities and that was enough.
In the last few years a larger percent of mortgages created were sub prime and also adjustable mortgages. This allowed people to get into homes for no money down and a low interest rate. These rates went up within a few years to a point were these marginal customers couldn’t cover the loan and default. It is estimated that 13.1% of mortgages are sub prime and account for 55% of foreclosures.
Last week the government had to go in and purchase preferred stock of Fannie Mae and Freddie Mac to show foreign investors that they are backed by the government. Lehman Bros. showed a 7 billion dollar write off from its residential and commercial real estate leading to its cash crunch and no buyers.
Now A.I.G. which insured those mortgages against failure is being downgraded on its credit rating which is forcing them to cover $14.5 billion in obligations and potentially another $5.4 billion in terminated contracts because of the downgrade.
They and others have enough assets and are not insolvent but just have no cash and further more these are accounting losses not real losses. They have not sold these and taken a real loss, however, regulations force them to reflect real value and this is the loss being shown.
© WithComment.com
Sub prime loans are loans to less qualified individuals and companies, but let’s go back and look at the industry of mortgages.
In the 1980’s a security was developed that was backed by mortgages through Fannie Mae and Freddie Mac corporations. Until recently the U.S. Gov. had said it would back these securities and that was enough.
In the last few years a larger percent of mortgages created were sub prime and also adjustable mortgages. This allowed people to get into homes for no money down and a low interest rate. These rates went up within a few years to a point were these marginal customers couldn’t cover the loan and default. It is estimated that 13.1% of mortgages are sub prime and account for 55% of foreclosures.
Last week the government had to go in and purchase preferred stock of Fannie Mae and Freddie Mac to show foreign investors that they are backed by the government. Lehman Bros. showed a 7 billion dollar write off from its residential and commercial real estate leading to its cash crunch and no buyers.
Now A.I.G. which insured those mortgages against failure is being downgraded on its credit rating which is forcing them to cover $14.5 billion in obligations and potentially another $5.4 billion in terminated contracts because of the downgrade.
They and others have enough assets and are not insolvent but just have no cash and further more these are accounting losses not real losses. They have not sold these and taken a real loss, however, regulations force them to reflect real value and this is the loss being shown.
© WithComment.com
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