Let's see:

The guaranteed loans were proffered as a means to give the economy a boost, not as presents to impoverished people. In effect, it was a big government gift to the housing market, not the homeowners. Those same loans were being paid properly with a fairly small percentage being "slow" until the economy shifted after the supposed end of the Iraq war. Then lots of folks found themselves with less income than they expected.

So now they're giving another big gift to the housing market.

You do so love to blame everything on "those darned liberals!" Has it anything to do with reality, or are you just blame-shifting away from the neo-conservative tendancy to be a great big good-ol-boy network?

I am puzzled.

If you used reason to conjoin atheism, are you using the same method to evaluate this post on the citizenwells blog? You seem to be blindly accepting this half-assed dissection on faith.

Freddie and Fannie guaranteed subprime loans because other players in the market were making a killing from mortgages.  Unfortunately, short-sighted policies focused more on bonuses linked to stock prices and short-term revenue by so many major financial players led us to where we are now. 

There is no reason not to try to help people obtain home loans.  Yes, those loaning need to have requirements in place to make sure these loans get paid back.  A lot of companies did not care to do this responsibly.  Why?  Large investors saw mortgages as stable and did not care to investigate the nature of the loans as long as the loan originators kept them coming.  The credit rating agencies (Moody's, Standard & Poor's,etc.) did not care to accurately evaluate the credit worthiness of the mortgage bundles and no one pressed for good evaluations.  Institutional investors are often not allowed to hold debt below a certain grade and those bundling the mortgages certainly did not want to have below investment grade assets to sell.  Then deregulation allowed Bear Sterns, AIG, Lehman Brothers, and many others to use their mortgage assets as collateral to borrow money to invest in more mortgages.  This gambling threw a ton of money into the mortgage market and further pushed down controls on loans as the sizable demand for mortgage loans by investors (mainly institutional investors) grew. 

We absolutely would not be in the mess we are in now if deregulation had not allowed for mortgage based gambling that encouraged companies to lower lending standards further and give away mortgages to any old Joe Schmo.  The root of the problem is the deregulation that led to gambling, not trying to get people into homes.  Make sure you are blaming greedy, short-sighted Wall Street financial executives and traders for this mess.  They are the ones to blame.  The mistake of the government was to allow for deregulation.  (Thank you Phil Gramm.)  Financial institutions are directly responsible for this mess.

How is this supposed to be Obama's fault?  First he's criticized for not being experienced but now he has extensive Senate experience that he went way back into time and served in Congressin 1999 when Phil Gramm and John McCain deregulated the banking industry.  Or did he go farther back into the Nixon administration when Fannie and Freddie were privatized?

Republicans have been running Congress since 1994, that's when the deregulation mess started.  Blaming the Democrats is like blaming a guy who just started his shift as dogcatcher for not catching all the dogs the previous shift released.

No surprise the media is really catching onto the financial mess once it starts hurting rich shareholders. Funny how the "free market" capitalists love socialism when they need to be bailed out.  They'll beg for a trillion dollar bailout but decry universal health care as too expensive.

D-cubed

, yeah, and the "grand old idiot party" kept saying Clinton economics was shit, which put us in the black, from the Reagan, Bush 1 red deficit. Modern era Republicans are statistically economically the worse of the 2 party system evils, and the most socially oppressive. The voting public is deaf, dumb and blind .... umm, why?

They created the housing bubble because the poverty pimps started whining that that some people couldn't afford homes. So we had to have F&F guarantee loans to unqualified borrowers. The players on wall street knew this government intervention created this artificial demand, they profited when the government encourage risky home buying, they got out before the bubble burst. The fed loaned money to banks at low interest rates and let them lend the money with no money down and no collateral.

Mortgages and home ownership had always been a conservative investment. When the only loans were 20% down, 30-year fixed, home prices never fluctuated much. Middle class people could build equity steadily, banks could lend at a reasonable rate because the loan was low risk. But the poverty pimps decided this was unfair that people had to get and education, work hard to save up 20% and they couldn't live in a mansion. Give the poor a mansion with no money down, because you care and economic conservatives don't.

The home mortgage interest deduction has been a disaster as well. Leave the free market alone. If you want to help the poor and middle class educated them to be more productive and entrepreneurial.

They government decided that economic progress was to be measured in terms of percentage of home ownership. Wealth was to be measured in terms of home values. Anyone that knows economics knows this is wrong. Economic progress and wealth must be measured in terms of productivity. Encouraging people to live above their means is a recipe for economic disaster.

Greenspan was not a poverty pimp but political john. The politicians pressured him to measure economic progress in terms of consumption(home ownership, SUV ownership, oil consumption) instead of worker productivity, he gave into to the political pressure.

No.  Absolutely not.  I'm sorry, but you do not understand how our financial institutions work.  I don't know of any news articles or other links to give you here.  You're just going to have to go do some research on your own if you really want to understand this topic.

Several years ago I began to work for a spin-off of Barclay's doing mutual fund accounting.  I was in the bond division and saw 1st hand the take-off of investing in mortgages and gambling via swaps.  PMs (portfolio managers) saw others making great returns from both the underlying mortgages and the swaps and wanted those same returns.  Loan originators gave out loans to people, bundled the loans, and then sold the bundles to mainly institutional investors.  Demand was high, so loan originators kept pushing to originate more loans.  The players on Wall Street created the demand, and are now suffering for it as they have unpricable assets on their books or have failed.  They did not get out before the bubble burst.  They still have not gotten out.  That is why we have a credit crisis and Paulson is talking about a $500-700 million bailout to take these loans off private sector balance sheets.  Banks simply do not want to lend to each other as they don't know how to evaluate the credit worthiness of the banks they are lending to due to mortgage backed assets on the books. 

The government did not create this mess by pushing for home ownership.  I will agree that some members of Congress likely did not investigate the mortgage situation as early as they might otherwise have due to liking a situation that allowed more people to get into homes.  That's as far as you can take the argument though.  This mess was absolutely created by greedy speculation - on the part of loan originators who wanted their commissions, and on the part of investors who wanted to make a killing off a thriving sector of the economy that they wanted to believe was solid.  Deregulation by the government allowed for this speculation (pretty word for gambling) and that is the place where the government is at fault in this mess. 

It's pretty clear you don't want to have a system where "hard work and education = wealth". You'd rather just have a system where everyone is equal in misery. Sorry, but I'm not joining the pity party.

The program worked just fine for many years until Republicans deregulated the industry.  The problem started with Greenspan who greatly lowered the federal reserve interest rate.  That made it cheaper for banks to loan money so they could provide loans at a low cost.  Nothing terribly wrong with that but Greenspan's intent was to create job insecurity and reduce wages by increasing unemployment.  So people went out and found a bunch of people and convinced them that the subprime loans were a good bet and didn't bother to worry about things such as income.  They then sold these risky loans in bundles to a third party so the people selling the mortgage to the risky home buyer didn't have to worry about any consequences.  The packaged mortgages were sold as bonds.  The bonds were rated by the ones selling them therefore inflating their safety value.  And there you go, a lovely ponzi scheme that any of us would go to prison for but multi-million CEOs get a golden umbrella and retire with a huge severance package and stock options.

The original system set up by Roosevelt worked fine.  By inventing the 30 year mortgage loans the interest payments became affordable to lower income people.  People became wealthier due to the increased market for new homes.  With reliable credit assessment people wouldn't get loans out of their means, so the mortgages were largely considered safe.  But some guy named Nixon had the brilliant idea to privatize the system so there would be a profit motive which encourages more risk.  Throw in more and more deregulation and the risks grow until eventually we get what we have now.  But you and I get to pay for that while those who made millions just sit in their lounge chair by the beach and sip on a Mai Tai.

Personally, I haven't got a problem with "hard work+education =wealth". I'd just like to see a system where those who got their wealth by relatives dying or giving them gifts wouldn't impede those who want to work and be educated from doing so.

Case in point Bush's "no child left behind" program - A pampered rich kid who thinks that teaching to a standardized test is a substitute for education, resulting in the slow death of the system.

Not just luck: birth plays a huge part.

Also, the willingness to fuck over other people for your own gain helps.

I actually considered birth part of luck - ie the luck to be born to succesful parents. Your success in life can be nearly 100% determined by your parents' success in life.

I think the sellers of mortgages certainly knew, that's why they tried to dump them. Many buyers may have known, but it wasn't their money they put at risk. They worked for a corporation that bought stocks for other people's money. Their job was to buy "safe" investments with the tons of cash they get from 401Ks, money markets, etc... Their job was to invest not to just sit on cash. 

Mortgages had always been rated safe investments because until about 3 years ago, because people had to put up 20%. But now, people with no down just walk away from houses cause they don't have any money in their homes.

Yes, so the only people who should be players in this high stakes gambling world are people who can afford to loose. Government and Wall street created this illusion that capitialism can be made safe for middle class people. We need a rich class to make high stakes investments. The low and middle class need to stay out of the casino if they can't afford to loose. The government just needs to make sure the rich boy's games aren't rigged.

The reason we need a government bail out is because low and middle class people's money is a risk. Their retirements are at risk. If wall street was left to rich gamblers, they would be the only one's loosing in a down market. The government has to stop encouraging wall street investment for the working middle class. They are like a casino that encourages people to start gambling with "free" chips.

Fannie and Freddies role was pretty much to guarantee loans for people who would otherwise no qualify for a mortgage. The government supported these instutions. All they did was artificially inflate home prices and get loans to unqualified people with little money down.

Regulation actually forced banks and investment institutions to buy a lot of "safe" investments like mortgages. A market without fraud should determine what is safe and what is not safe.

No, they don't contradict.  They would if there was only one regulation.  However there are many and deregulation doesn't necessarily mean complete deregulation.  Since you demostrated a complete lack of understanding of the Federal Reserve System, and I don't want to give basic high school lectures that will probably be ignored anyway, I won't waste my time explaining it.

EXC,

I guess I'm not sure what your point is anymore.  You were saying that the government created this mess by encouraging home loans for the poor and middle class.  Are you now saying maybe that wasn't so? 

I'm interested in what you think lower and middle income folks should do with their money if they shouldn't be allowed to invest?  Personally, I like big tattoos and lots of pretty books, but don't think spending a lot on those items makes good economic policy for supplementing my retirement.  Should I be barred from contributing to my IRA?

You do realize that the majority of the subprime loans out there did not originate with Fannie Mae and Freddie Mac, right?  This crisis originated in the private sector.  The private sector is responsible for originating the loans that the financial institutions are holding. 

I am glad to see that you support regulation of the markets.  Unfettered capitalism just causes way too many problems for the general populace as the rich do cheat.  They're human and they do like money.  Regulations are there to keep them thinking long-term and playing nice.

I am aware of the difference between the Fed's regulatory measures and the deregulation that allowed banks to merge with insurance companies.  I was responding that the Federal Reserve keeping interest rates artificially low, lower than the market rate, had a huge impact on the housing bubble and the subprime mortgage crisis.  The deregulation enacted by Gramm-Leach-Bliley is partially responsible, but only because the deregulation was partial.  Then again, GLB also allowed for the companies that currently exist as Citigroup, Shearson and Primerica.  Bear Stearns and Merrill Lynch would not even have been allowed to have been bought by JP Morgan Chase and Bank of America, respectively, though I have to wonder if those two companies would still do so if they weren't getting a handout from the government for it. 

The dollar has been falling since a little after the start of this millenium though the mortgage crisis and other commodity prices have had a more compressed and therefore more intense effect.

I would suggest that everyone involved face the losses.  Sadly, those who were not involved will feel it as well though it's more fair that the responsible people not be punished for their decisions by forcing a bailout on them.  Repeal the CRA, privatize FNMA/FHLMC, allow more credit rating agencies instead of the ones that failed in their present and past assessments.  Harsh laws against and penalties for the fraud which some mortgage lenders and "liar loan" borrowers engaged in.  Eliminate restrictive zoning, land-use rules and other growth management planning laws that drive up the cost of homes.  End fractional reserve banking--fraud.  And finally, ask the Fed really nicely not to keep interest rates so artificially low; there's no way it's going anywhere or letting the market determine them. 

Great system. We can just pick whatever profession we want, the government pays us all the same. I'm going to be porn star. I'm pretty enthusiastic about having sex with lots of attractive women. The female porn stars make more money now, so under your system, I should expect to get about $10,000 per movie? Where do I sign up? Unfortunately so will about 100 million other men.

Maybe a rock star too, who cares if my music sucks, you'll be force to listen to it.

They created this mess with "compassion" for the poor, i.e. using  FM&FM to guarantee loans, instead of having the free market decide what was a good loan.

Never said any such thing. They should be free to do whatever they want with their hard earned money. But, we don't need the government encouraging anyone to do anything with their money.

I think 401Ks suck too. This mess was also caused by too much money chasing too few good stocks, thanks to retirement savings incentives. The money would have been better invested in local communities rebuilding roads, sewer, private schools, etc... If we had a pay a you go system, citizens could invest in local infrastructure instead of trusting their retirement with greedy wall street crooks.

That's why we need to privatize most government services and have the government just concentrate on preventing fraud. The government's only role should be the referee.

"Socialistic" policies are the reason we're looking at more than a trillion dollars for a bailout in the first place.  They are the bailout.  Regulation from the Federal Reserve and "do-gooder" Congress actions, combined with the handouts all these good ol' boys want to give their friends=not free markets. 

Whatever the result of the system is, it is the morality of the thing that counts, hence "the ends do not justify the means".  Otherwise basing morality on utility as opposed to what is right gets you prohibition, war, government handouts, etc. 

Have you read anything? It was deregulation, the opposite of socialistic policies that did this. I personally would like to get rid of free markets altogether but the best we're likely to achieve is a regulated one - the more regulated and the fewer essential services given to a free market the better.

It is true that historically low interest rates did help fuel the housing crisis.  Do you want the Fed to then calculate the federal funds rate based on prevailing market rates, whether or not that is in the best interest of the federal government?  Why should private business that does not care about the economy of the country as a whole, but rather their own bottom line, determine governmental lending rates rather than the government itself?

You can bet they would have.  There are still a lot of good underlying income-generating assets within all of the companies going under.  The problems are just with the divisions of the companies that used leverage to gamble on the housing market.  Get rid of the debt from that gambling and you still have a NICE basket of assets that you can pick-up on the cheap.  This is what the acquiring companies are doing.  If they can’t get rid of enough of the debt, they just let ‘em fall.

Do you have any graphs to show the fall of the dollar versus the major currencies since 2000?  The research services I used only go back 5 years, so I can’t comment on 2000-early 2003.  Comparing USD to CAD, EUR, YEN, GBP, CHF, and AUD gives mixed results for 2004-2006.  Overall, I would say the dollar held fairly steady during that time frame.  In 2006-2007 you start to see a steep decline in the dollar, depending on the currency you are comparing this to.  I see the effect on the dollar from the mortgage crisis and commodity prices.   

So you want to keep frozen credit markets for years, causing the ordinary consumer to have escalating problems obtaining home loans, car loans, business loans, and any other type of credit?  Do you realize that a modern economy is highly dependent on credit?  Our economy cannot function in usable manner without credit between lenders and between lenders and consumers.  Those who were not involved will feel the brunt of doing nothing.

From what I understand, F&F underwrote the initial loans and signed off the the borrowers were qualified. Then they sold them as high grade investments. Then Wall street had so much money pouring in from 401Ks and foreign investors they had to put the money somewhere that was "safe". The public is duped into thinking the "professional" on wall street new what they were doing.

Foreigners put their money into the USA because they believed the government would back it up so this was not a free market. Also 401K investment encouragement is not a free market either. When we had a free market, no one got a loan unless they put down 20% and had a good income.
 

I have lived in Mexico, it was a hell of a lot cheaper. But I did spend a lot of time camping on the beach being pretty self-sufficient. The problems of Mexico have to do with the corruption. Pay as you go or any system won't work if you have corruption and fraud, the government should be the referee only. You also have little enforcement than environmental protection. The other problem of course is religion. Many poor uneducated people believing Mary, Jesus and all the saints are going to take care of them, having large families then passing this absurdity to the next generation.
 

The present problem with violence is mostly cause by US drug policy, which is not a free market. Religion is the drug of choice for the unwashed masses in the USA and it's monopoly must be protected. Despite all this, Mexico is still a better investment than the USA.

As far a retirement, here's my strategy. The world may descend into chaos, war and economic turmoil due to terrorism, religion, class warfare, communist revolutionists and government debt. Put at least 50% into buying land you could farm if worse comes to worse. Make sure the land has adequate water and other resources necessary to be self sufficient.

With the rest, look to invest in technologies you think the world will need such as alternative energy, technology to lower the costs of education and medical services. Avoid companies that are public and bought by 401K investment firms. We know these stocks are all way overvalued because too much money is chasing very few good companies. Get to know the technology and the people running the companies before you invest.

Look globally for investments because we know that real estate stocks in the USA are still way overvalued because we don't have a free market.