How the Clinton administration sold out America - The banking sector

[Krustee]

To understand the economic situation we face now one must gain a basic understandng of the past.

The economic mess we are faced with now is merely a repeat in, simplistic terms, of what we have seen before & in the media you have no doubt heard reference of our current economic situation to the crash of 1929.

Read this article about what started the stock market boom in 1929:
http://www.stock-market-crash.net/1929.htm

You will note that those conditions are very similar to the conditions we had in the early to late '90's.

Likewise, we had a steep rise in Mortgage Backed Securities (MBS) after 1995 when Freddie Mac was unleashed to offer Fannie Mae loans packaged in MBS portfolios.

Read the following:

At the root of the subprime problem is a new class of specialized mortgage lender that has emerged in recent years to operate free of the regulations affecting traditional banks. In the mid-1970s, traditional institutions such as savings and loans had nearly 60% of the mortgage market. Now that stands at about 10%. Over the same period, commercial banks' share has grown from virtually nothing to about 40%.

Many of the new lenders specialize in loans to borrowers who could not qualify for traditional mortgages because of poor credit or low incomes. And they have passed the risk on to investors around the world who are eager to buy mortgage-backed securities carrying higher yields than those offered by safer investments such as U.S. Treasury bonds.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1812

To understand what happens in the stock market you need to understand a bit of psychology.

Behavioral Finance
A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.

Behavioral finance often includes studies on herd psychology.

Behavioral finance can be used to predict what the market will do in a Bull or Bear market.

Bull Market
A bull market is a financial market condition when prices of an instrument, such as stocks, are trending higher.
The bull market tends to be associated with economic growth and expectations of further capital gains.
The opposite of a bull market is a bear market where the market is trending lower.
Bear Market
A market condition in which the prices in a financial market are falling or are expected to fall.

As in 1929 our current condition was preceded by a strong Bull market that had continued far longer & grown more than most had assumed it would.

This condition is referred to as the market being in a Bubble.

Bubble
A bubble occurs when speculation in a financial instrument causes the price to increase, thus producing more speculation. The market price then reaches absurd levels and the bubble is usually followed by a sudden drop in prices, known as a market crash.
The term refers to how, like a soap bubble, the prices will reach a point at which they pop and collapse violently.

This is what has happened to the current housing & stock market.
The bubble was not limited to the housing finance sector alone due to the massive amount of MBS's sold to investors in many sectors, even traditional banking, attempting to capitalize on the profits being made on these loans.

Traditional banks had been restricted from buying & selling stock in real estate by the Glass-Steagall Act. This Act was put in place in the 1930s following the bank failures during the Great Depression.
It was designed to keep banks out of the speculation business.

The change in the lending industry brought about by the Clinton administration allowed loans to be issued to those previously not qualified for a loan & these relaxed qualifications also increased the no money down loans being issued to real estate investors.

From wikipedia:
"Due to these previous credit problems, these individuals may also be precluded from obtaining any type of conventional loan.

To meet this demand, lenders have seen that a tiered pricing arrangement, one which allows these individuals to receive loans but pay a higher interest rate and higher fees, may allow loans which otherwise would not occur.

In 1999, under pressure from the Clinton administration, Fannie Mae, the nation's largest home mortgage underwriter, relaxed credit requirements on the loans it would purchase from other banks and lenders, hoping that easing these restrictions would result in increased loan availability for minority and low-income buyers. Putting pressure on the GSE's (Government Sponsored Enterprise) Fannie Mae and Freddie Mac, the Clinton administration looked to increase their sub-prime portfolios, including the Department of Housing and Urban Development expressing its interest in the GSE's maintaining a 50% portion of their portfolios in loans to low and moderate-income borrowers.[7]"
http://en.wikipedia.org/wiki/Subprime_lending#Proponents

The market reached levels that were not realistic to the actual monetary value of the homes due to the investor frenzy behind Mortgage Backed Securities.

This frenzy caused a further unrealistic rise in property values due to the sheer volume of loans being made.

Bill Clinton took the restraints off of the CRA by signing a bill to repeal the Glass-Steagall Act.
This Act was put in place in the 1933 following the 1929 crash and bank failures which caused the Great Depression.

It was designed to keep banks out of the speculation business.

The repealing of the Glass-Steagall Act is probably the most explicit and detrimental action a President has ever done to cause the downfall of the American economy.

1933 - Glass-Steagall Act creates new banking landscape

Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see market speculation engaged in by banks during the 1920s as a cause of the crash.

In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve's control over credit.

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

The above link to Frontline gives a complete account of the events around the repeal of Glass-Steagall & this cannot be underestimated in it's impact on the lending institutions.

Oct.-Nov. 1999 - Congress passes Financial Services Modernization Act

After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for lending to poor communities.
Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference.
Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22.
Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement.
When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government?"
http://www.pbs.org/wgbh/pages/frontl...ll/demise.html

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat.
1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires
banks and savings and loan associations 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. (repeal of Glass-Steagall)

 

[Krustee]

More on Mortgage Backed Securities (MBS) :

Mortgage-backed securities are created by assembling thousands of loans into bundles and creating a series of bonds that pass borrowers' principal and interest payments on to the bond owners. Typically, there is a series of bonds of increasing degrees of risk reflecting the borrowers' creditworthiness. The riskier bonds pay the highest yields but are the first to lose value if borrowers fall behind in payments.

Many subprime loans have adjustable interest rates: They typically change every year by adding a fixed margin to an underlying rate such as the yield on one-year U.S. Treasury bills. Between 2003 and early 2007, one-year Treasury rates rose to about 5% from just over 1.25%. As a result, borrowers are now facing steep increases in monthly payments as prevailing interest rates rise. That has led to growing defaults and losses for bondholders.

"Things are unraveling faster, and to a degree that we did not expect," Wachter said, adding, "It is clear that nobody knows who owns the toxic waste portion" -- a reference to the riskiest bonds. "The fact that it is so widely dispersed has made it even worse because many investment funds are suspect."

Balloon Payments and Bailouts

The United States has been the leader in the move to securitization to provide mortgages, but it is a system that has taken decades to develop.

Before the 1930s, American mortgages featured variable interest rates and down payments of at least 50%, and homeowners generally renegotiated their loans every 12 months. Borrowers' payments covered interest only, with principal paid off with balloon payments, usually after less than five years. Most loans were funded by savings and loans, which drew on savers' deposits, or by mortgage bankers using funds invested by insurance companies.

As unemployment rose during the Depression, many homeowners could not make their balloon payments, causing a wave of sales and foreclosures. The federal government stepped in, creating the Federal Housing Administration (Fannie Mae) to insure long-term mortgages, and the Home Owners Loan Corporation to sell government-guaranteed bonds to purchase non-performing mortgages. This was the beginning of the securitization that is a central feature of today's mortgage market; lending risk is passed on to investors in mortgage-backed bonds rather than being held in the institution that originates the loans.

Essentially, the government bailed homeowners out by replacing their old mortgages with fixed-rate, 20-year loans they could afford. Borrowers could now borrow most of the money needed to buy a home, and instead of facing balloon payments homeowners amortized, or paid down principal gradually.

Under this system, savings and loans were the primary source of mortgages into the 1970s. S&Ls were federally insured and heavily regulated. The government set ceilings on interest rates paid to depositors, and S&L lending was limited to mortgages. Most mortgages carried fixed rates. In 1968, Fannie Mae was divided into The Government National Mortgage Association, or Ginnie Mae, and the new Fannie Mae, which was privately held and could buy and sell non-government-backed mortgages.

The system worked well so long as short-term interest rates paid to depositors were lower than long-term interest rates charged to borrowers. But in the late 1970s, interest rates soared and the yield curve inverted -- i.e., short-term rates were higher than long-term ones. Many S&Ls became insolvent because they were paying more to borrow money than they received on the long-term, fixed-rate loans they had previously issued. This kind of interest-rate risk can be avoided by issuing adjustable-rate mortgages, but the federal government had barred that to protect homeowners from "payment shock" when interest rates rose.

In response to the S&L crisis, Congress in 1980 lifted a regulation that had put a ceiling on the interest rate paid to depositors, helping S&Ls compete with the relatively new money market funds for the deposits needed to make loans. And regulators lifted the ban on adjustable-rate mortgages.

Technology and academic insights also helped the market evolve. Starting in the late 1970s, the mortgage industry and investors who bought and sold its securities began to use more powerful computers to analyze prices and risks in much the way sophisticated investors analyze the options market. Thus they could better predict the number of borrowers who would default if interest rates went up, and how many would refinance if rates fell -- events that can undermine the value of mortgage-backed securities.

The 1990s saw the development of "private-label securities" issued by commercial banks and other entities generally free of the regulations governing ordinary banks. These were similar to the mortgage-backed securities sold to investors by government-authorized entities like Fannie Mae, but they did not carry the same implicit government guarantee that investors would be protected against unexpectedly high default rates.

Initially, private-label securities involved only "prime" mortgages issued to low-risk borrowers, but then lenders used them to back jumbo loans that the government-authorized lenders were not permitted to make. Finally, lenders used them to back subprime loans to borrowers with poor credit histories and Alt-A loans to ones deemed safer than subprime but not as good as prime.

The private-label market mushroomed from $586 billion in 2003 to $1.2 trillion in 2005, as subprime and Alt-A loans grew from 41% of the private-label market to 76%, Wachter and Green say. Investors were eager to buy these securities because the higher mortgage rates charged to riskier borrowers meant higher yields on the mortgage-backed securities.

"For a time, capital markets seemed to have an appetite for almost any kind of risk, so long as it received sufficiently large yield in exchange," Wachter and Green write. But, they add, there was little understanding of the credit risk -- the risk that borrowers would stop making payments -- in the new, fast-growing market. "Many subprime loans had essentially no underwriting, and insufficient data were available to calibrate default risk for subprime mortgages."

Because home prices had soared between 1997 and 2005, homeowners who ran into financial trouble could easily sell their homes for more than they owed, avoiding default and foreclosure. That period therefore provided no insight into what would happen if home prices leveled off or fell while rising interest rates saddled homeowners with bigger payments -- the situation that has developed in the past year or so.

'No Skin in the Game'

The looser credit standards of the past decade brought a mortgage boom, with Americans holding 2.5 times as much mortgage debt in 2005 as in 1997, a period when gross domestic product grew by just 50%, Wachter and Green say. Subprime mortgages made up 22% of new loans in 2005, compared to 8% in 2003, and in 2004 more than 30% of all mortgages carried adjustable rates, up from about 10% in 2001.

"At the same time, the subprime market developed new products whose features had never faced a market test," Wachter and Green write. This included 2/28 and 3/27 loans, which have 30-year terms but begin annual rate adjustments after the first two or three years. They carried prepayment penalties making it prohibitively expensive for borrowers to refinance when their payments got too high. Buyers qualified based on the initial low "teaser" rate, even though they might not be able to shoulder the higher payments that could come if the rate adjusted upward.

"The apparent mistake the industry made was to offer a loss-leader price in the early years of a loan in order to get borrowers into the market, in the hope that they would make up the difference in later years," Wachter and Green write. "They attempted to enforce the higher price in the future through the use of prepayment penalties. Prima facie evidence suggests that this did not work."

Many borrowers, Wachter and Green say, did not understand how high their monthly payments could rise if interest rates went up. They note that "even under the best of circumstances, disclosing true costs and risks to even well-informed borrowers is difficult; to a borrower without financial literacy, it is nearly impossible."

Investors who bought securities backed by subprime loans apparently did not understand the risks either. "Mortgage originators had powerful incentives to originate loans, regardless of quality: every mortgage that was successfully originated and sold to an investor produced a fee for the originator." These firms often assured investors that loans met minimum standards, and they often promised to make good in case of unexpectedly large number of defaults. But they did not have the capital to honor those promises.

It is puzzling, Wachter and Green say, why investors did not understand this. Nor did they seem to understand the risks inherent in the housing market; from time to time, prices have dropped in various regions of the U.S.

The evidence from the U.S. and around the world clearly shows, Wachter and Green say, that the public benefits when market-based mortgage systems replace ones controlled by government: Loans become easier to get and homeownership rates rise. Investors benefit as well, from access to new types of securities. It is not so clear, they say, that any one way of providing market funding is best -- through savers' deposits, bonds guaranteed by government or securities that have no guarantees.

Wachter and Green argue, however, that there is a way to minimize a repeat of the problems recently experienced in the subprime market: Make sure that the firms that originate these and other loans continue to have a financial stake in the loans even after they are securitized and sold to investors.

That could be done by requiring that they keep enough funding on hand to cover a portion of investors' losses if borrowers default at higher-than-expected rates. "The problem is that the originators have no skin in the game, or there's some misunderstanding about whether they have skin in the game," Wachter said. "It needs to be made explicit that they do."
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1812

Keeping the Glass-Steagall act in force would have prevented this whole mess!

 

[sirlickheralot]

LMAO, love how you put all the blame on Clinton and completely ignore the Republicans hand in the repealing the Glass-Steagall Act. The Gramm-Leach-Bliley Act which repealed parts of the Glass-Steagall Act was introduced by 3 Republicans which is why it is named after them. Senator Phil Gramm a Republican, and congressmen Jim Leach and Thomas Bliley, both also Republicans. Of course you also fail to mention that the Republicans happened to be in control of the Senate and Congress at the time the act was passed.

Yep it must be all Bill Clinton's fault, how can a Republican Senate and a Republican Congress stop the President from passing bill they don't agree with. The bill was passed the Senate 90-8 and by Congress 362-57 so obviously it had strong bi-partisan support. Clinton and the Democrats deserve some of the blame, but not all of it or even the majority of it. If it was such an obviously bad idea based on the knowledge that they had at the time (and not with the knowledge we have today) then the Republicans should have used their majority to protect the American people from this Act, they had the power to do so.

 

[Krustee]

Yep it must be all Bill Clinton's fault, how can a Republican Senate and a Republican Congress stop the President from passing bill they don't agree with. The bill was passed the Senate 90-8 and by Congress 362-57 so obviously it had strong bi-partisan support. Clinton and the Democrats deserve some of the blame, but not all of it or even the majority of it. If it was such an obviously bad idea based on the knowledge that they had at the time (and not with the knowledge we have today) then the Republicans should have used their majority to protect the American people from this Act, they had the power to do so.

Re-read the Frontline report:

Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference.

Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22.
Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Wonder what those negotiations with Clinton admin. consisted of?



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
the savings and loan crisis a decade ago." [10] This change was to move
governmental supervision of two of the primary agents guaranteeing subprime
loans, Fannie Mae and Freddie 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.
Representative Barney Frank (D-MA) claimed of the thrifts
"These two entities-Fannie Mae and Freddie Mac-are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Representative Mel Watt (D-NC) added
"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing."[11]

Notice how Democrats blocked changes that would have prevented or at least lessened the impact of these bad loans.

 

[chilli]

I honestly think it was created by greed.

We are taught to look up to and respect the "banking community", as if they have some gift for looking after our finances... this whole mess proves that they can't manage our money any better than anyone else.

Bankers just proved they are as greedy as everyone else...

 

[sirlickheralot]

Re-read the Frontline report:


Wonder what those negotiations with Clinton admin. consisted of?

Whether Weill made any difference in precipitating a deal is unclear.

George W. Bush Administration Proposed Changes of 2003

The Senate had already passed their version of the bill and the Congress had already passed their version of the bill. They were having trouble agreeing on a joint bill. What exactly are you implying Bill Clinton is guilty of, facilitating cooperation between the 2 houses?

The fact is 52 Republican Senators and 207 Republican Congressmen voted in favour of the bill. Enough to pass the bill even without democratic support. Another fact is that the efforts to take down the Glass-Steagall Act began long before Clinton was even President and many European countries had already removed their own regulations preventing the mixing of banking and insurance companies.

I suppose Clinton could have tried to veto the bill but it had more than 2/3s support in both the Senate and Congress so at that time with the knowledge he had why should he have assumed it was a bad idea. If we're going to judge Clinton for a decision he made 9 years ago based on information we have today then we also have to blame the Republicans for voting in favour of this act in the first place. If they hadn't passed the act, Clinton never would have had the chance to sign it into law.

 

[Krustee]

I suppose Clinton could have tried to veto the bill but it had more than 2/3s support in both the Senate and Congress so at that time with the knowledge he had why should he have assumed it was a bad idea. If we're going to judge Clinton for a decision he made 9 years ago based on information we have today then we also have to blame the Republicans for voting in favour of this act in the first place. If they hadn't passed the act, Clinton never would have had the chance to sign it into law.

Yes he could have veto'd it but why do that when he & Hillary could benefit from the fallout of the repeal?

We can only imagine the level of machination exerted over those 30 years, but we do know this. Robert Rubin was Secretary of Treasury, which had oversight over Glass-Steagall regulation. Days before he resigned, Glass-Steagall was repealed. Just over a year later, he became chairman of the Citi executive committee, with an annual compensation of $40 million, a position he still holds, despite Citigroup's $24 billion in subprime-related losses.
http://consumerist.com/381032/blame-the-subprime-meltdown-on-the-repeal-of-glass+steagall

What does this have to do with Bill Clinton, or the current economic feces-fest we are currently in?

When Bill Clinton was President in 1998, Citibank, by then called Citicorp, was trying to merge with Traveller's group (the investment firm with the ads with the red umbrella). Under the Glass-Steagall Act, this was prohibited. Way back in 1933 FDR and Co. were wise enough to know that commercial banks shouldn't own investment banks, it leads to all sorts of illegal shenanigans.

But years of bribing, er, lobbying Congress had done it's trick, and Citicorp's CEO Sandy Weill said he was assured by Federal sources the merger would be approved, which it was in 1998. (Technically the merger was illegal in 1998 as the law wasn't repealed until November, 1999.) Renamed Citigroup after the merger, they have gone on to purchase other investment firms.

The Gramm-Leach-Bliley Act of 1999 (called the Financial Services Modernization Act at the time) repealed 66 years of consumer protections and paved the way for financial mergers and the introduction of new investment products. The Act was written by Republican Senators including Phil Gramm, and early voting was split down party lines until President Clinton forced a rewrite of the bill.

Clinton vowed to veto the Senate version of the bill unless it was re-written to include "requirements that banks make loans to minorities, farmers, and others who have had little access to credit." The new version passed 90-8 in the Senate, passed the House, and Clinton signed it into law.
Clinton's required reworking of the bill should be studied closely to see what role, if any, it played in illegal, often racist, subprime loans at higher rates than Caucasian borrowers were offered.

The main players in repealing the Glass-Steagall Act - Sandy Weill, Phil Gramm, Robert Rubin, and Bill Clinton, have all continued to rake in ridiculous amounts of money, while the law they enacted contributed to the implosion of the U.S. banking system and our current recession.
People are losing their homes, but the likes of Robert Rubin are still earning $40 million dollars a year.
Bill Clinton has earned over $100 million dollars since leaving office despite not officially having a job.
Sandy Weill apparently broke many federal laws, but didn't even get a slap on the wrist while pocketing $2 billion.
http://www.ickypeople.com/2008/04/bill-clinton-major-part-in-subprime.html

Democrat President Bill Clinton's administration repealed a law that prevented banks and insurance companies from merging due to a conflict of interest. He also heavily encouraged the use of sub-prime loans through CRA of 1977, and also required them to be insured with taxpayer money in 1997. Meanwhile, two Democrat CEOs (Jim Johnson and Frank Raines) of Fannie Mae were grossly inflating accounting numbers to pocket bonuses and give the appearance to investors that the companies are incredibly profitable.
John McCain proposed reforms in 2005, and spoke to Congress in 2006, to regulate the housing financial industry, but the Democrat-controlled Congress in 2006 nixed it.
In 2006, Raines and Johnson were both linked to inflated bonuses and below-rate loans, and Raines agreed to "early retirement" in addition to fines and loss of stock.
Both Raines and Johnson are then selected by Barack Obama - Johnson for Obama's VP selection, and Raines as a campaign finance adviser.
Fannie Mae contributes heavily to both party's campaigns, but favoring Democrats 57%:43%.

Bill Clinton's administration, corrupt Democrat CEOs of Government-sponsored housing agencies (who both happen to have been picked by Obama to help his campaign), and corrupt Democrats in Congress who refused housing regulation reform proposed by McCain 3 years ago are the ones to blame.

Obama is being a hypocrite in recent speeches when he's laying blame to Republicans and McCain for the current financial meltdown and economic situation. Many Democrats have created this problem with Fannie Mae and Freddie Mac, and after years of fighting reform and allowing banking consolidation that amplified the problem, we have the current situation.

In his own words:
Bill Clinton in an interview with BusinessWeek:

BW: Phil Gramm, who was then the head of the Senate Banking Committee and until recently a close economic adviser of Senator McCain, was a fierce proponent of banking deregulation. Did he sell you a bill of goods?

Clinton: Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.

Your up Krusty..............what do you have to say to that councillor?

I would really be surprised if you offered a single intelligent comment on this issue but I guess that is just too difficult.

 

[Krustee]

Here's some more things I've dug up in my research:

Clinton, Obama, James A. Johnson and Henry Cisneros, Circle of greed that threatens to bring down America Financials

James A. Johnson and Fannie Mae

You should already be well aware of the Fannie Mae and Freddie Mac takeover by the US Government due to “cooking the books” and a near collapse. As reported earlier, the shareholders (US taxpayers) are left holding the bag while the corporate executives enjoyed lavish bonuses. One of these executives was James A. Johnson (see biography below). This came to light in 2004.

It seems that the accounting scandal does not end at Fannie Mae with James A. Johnson because when he was at Fannie Mae, he received preferential real estate loans to the tune of $5,000,000.00 from Countrywide Financial (see Obama connection below). Perhaps Mr. Johnson didn’t have enough cash to purchase real estate directly and took out one of those handly “low income earner loans” we have been hearing about lately!

Another Obama Campaign advisor (Cisnero) paves the way to financial ruin

These loans occurred while Henry Cisnero sat on the Board of Directors at Countrywide Financial (Connection #1 to Clinton as Johnson (1991) and Cisneros (1992) were both appointed by Clinton). These loans occurred in 1998, 2001 & 2003 (Cisnero was on the board from 2001-2007). Countrywide went under in 2008. Connection #2 is Clinton pardoned Cisnero upon leaving office in 2001.

One of Mr. Cisneros’ acts as the Secretary of HUD was to deregulate the mortgage arena to allow companies to bypass HUD for approval. This was done in 1993.

http://www.hud.gov/offices/adm/hudclips/le...iles/93-2ml.txt

Then in 1994, in another deregulation move by Cisneros he allowed these mortgage companies the ability to bypass HUD again to give them autonomy in choosing their own “appraisors”.

http://www.hud.gov/offices/adm/hudclips/le...les/94-54ml.txt

The stage was set, the table was cleared and the greed commenced because less than four years later (1998) the gig was starting to see the light of day when Fannie Mae chief executives enriched themselves to the tune of tens of millions.

James A. Johnson is busy elsewhere

Prior to the 1993 and 1994 deregulation actions of Cisneros, James A. Johnson was appointed to the Board of Directors of KB Home in 1992. This was the same year that James A. Johnson was running Fannie Mae and the same year that Cisneros headed HUD and those two entities were intrinsically entwined. Before I get into how KB Home skyrocketed upward in the annals of business, I will tell you that KB Home is also embroiled in the same type of scandal that James A. Johnson found himself in at Fannie Mae. This is also a tail of enrichment and accounting cover-ups. Just like Fannie where Johnson sat on the board and his CEO (Harold Raines) orchestrated the accounting scheme and Johnson benefited, so too is the tail at KB Home. It is also telling that Cisneros was appointed to KB Home board in 2000, but first things first.

http://www.latimes.com/business/la-fi-kara...1,1039329.story
http://www.laobserved.com/biz/2007/05/the_...and_fall_of.php

You have to ask yourself, why would someone like Katz and also Johnson, take such a risk?

Simple, when Katz ran KB Home as the CEO, he reaped in salary and bonuses over his tenure to the tune of $232,000,000 (this was just the last 3 years of his employment at KB) and when he was caught and settled with the SEC his fines and repayment were $6,700,000 to KB shareholders and a $480,000 penalty to the US Treasury. You do the math. The settlement also bars him from running another public company for 5 years. Wow, can you live on $210,000,000 for five year before you can get back into the game?

I have enclosed a source that comes from KB that chronicles it rise (year by year) and when you look at the history, the company does not announce anything from 1986 until 1993 (The year that Cisneros deregulated HUD financing). This source is very telling, especially when in 2000, Cisneros joins the board and creates a partnership with KB with a company called “American City Vista”. This meteoric rise is from HUD financing and the ability to tap into it.

http://media.corporate-ir.net/media_files/...stones_0808.pdf
http://sanantonio.bizjournals.com/sananton.../25/daily2.html

More scandals for KB Home

http://www.hobb.org/index.php?option=com_c...&Itemid=197
http://www.mysanantonio.com/news/MYSA28_01..._html29709.html

James A. Johnson is still busy elsewhere

Before I begin on James A. Johnson and his Board membership at “United Health Care”, it should be noted that Cisneros is already stumping on this subject (universal health care which would make United a direct recipient of) with his pals in La Raza.

http://www.utpa.edu/news/index.cfm?newsid=...amp;curbar=news

In yet another example of the James A. Johnson school of accounting scandals under his leadership we must turn to a different corporate arena other than mortgage finance. I am speaking about his tenure on the Board of Director at “United Health Care” and the company falsifying financial statements that has caused the loss of market value to the tune of $17 billion dollars.
http://www.bizjournals.com/milwaukee/stori.../24/daily4.html
http://www.businessweek.com/magazine/conte...28/b3992075.htm

So as you can see, that James A. Johnson is a busy man and the number of companies he is leading that are tied to MASSIVE financial fraud is much too coincidental to be looked past. I am astounded as to the cover from prosecution this man has enjoyed. The combined companies and their loss to investors and the method in which they achieved their bounty must be criminal because it over shadows Enron, Tyco, Worldcom and the like.

James A. Johnson biography
1991 – 1998 Fannie Mae Chief Executive Officer
http://www.ofheo.gov/media/pdf/FNMfindingstodate17sept04.pdf
http://www.washingtonpost.com/wp-dyn/artic...5-2005Apr6.html

Johnson Capital Partners, Chairman/CEO

New Leadership for America Pac

Boards Johnson sat on

Perseus, LLC, Vice Chairman

Note: one of the investment groups under the Persues group banner is Perseus-Soros Biopharmaceutical Fund, LLP and also soros owned Persues Book group which published, in 2008, Scott McClelland (George Bush Press Secretary tell all book) titled “What Happened”.
http://www.perseusllc.com/funds.htm
http://www.perseusbooksgroup.com/perseus/a...p?id=1000031782

KB Home, Board of Directors – 1992 through present

Goldman Sachs: Gennet Company, inc., Board of Directors

Target Corporation, Board of Directors

Temple Inland, Inc., Board of Directors

United Health Group, Vice Chairman Board of Directors re-elected 2006 to current

Council on Foreign Relations

American Friends of the Bilderberg

The Trilateral Commission

Honorary Trustee of the Brookings Institute

Chairman Emeritus of the Kennedy Center for the Performing Arts

--------------------------------------------------------------
Henry Cisneros

HUD Secretary – 1992 through 1997
http://www.hud.gov/library/bookshelf12/misc/cisneros.cfm

Countrywide Financial 2001 – 2007 (resigned October 2007)
http://seekingalpha.com/article/51289-coun...ss-board-member

KB Home, Board of Directors – 2000 – 2003
http://www.kbhome.com/PressArticle~id~55.aspx

American CityVista – CEO
In the year 2000 company is formed in partnership with KB Home
http://media.corporate-ir.net/media_files/...stones_0808.pdf

New Leadership for America Pac

The Clinton Connection:

In 1991 the Clinton Whitehouse appointed James A. Johnson head of Fannie Mae

In 1993 the Clinton Whitehouse appointed Henry Cisneros as Hud Secretary

In 2001 the Clinton Whitehouse pardoned Henry Cisneros and Linda Jones (fka as Linda Medlar) for their roles in the indictment and conviction that Cisneros lied to the FBI about payments to Jones (Cisneros former mistress). They were pardoned the same day as the 2 weatherman underground members and the 16 FALN terror group members.
http://www.usdoj.gov/pardon/clintonpardon_grants.htm

The Obama Connection:

In June 2008, James A. Johnson resigned from the Obama campaign as a financial advisor and head of VP selection after news surfaced that Mr. Johnson was involved in the Countrywide financial scandal that he received preferential loans in October 1998 in the amount of $392,950; in November 2001 in the amount of $1,300,000 and in June 2003 in the amount of $971,650.
http://online.wsj.com/public/article_print...0258665089.html

In August 2008 Cisneros joined the Obama Campaign, spurning long time relationship with the Clintons.
http://trailblazersblog.dallasnews.com/arc...mpaign-for.html

It is interesting to note that in June 2008 (when Johnson became an embarrassment to the Obama campaign) it asked Johnson to step down. Then two months later, Cisneros joins his campaign with much more baggage that Johnson and still nothing about it reported by the MSM, which I will do so here.

On September 11, 2008 a press conference was issued and acting as an Obama spokesman on his policy was Cisneros who stated the following plan if Obama is elected.

“Cisneros said Obama would create a White House Office on Urban Policy that coordinates transportation, housing, labor issues and commerce in metropolitan regions. Obama would promote the creation of research parks and reverse cuts to health care, education and affordable housing that Cisneros faulted the Bush administration for.”
http://www.metroplanning.org/press/mpcnews.asp?objectID=4542

This press conference shows that Cisneros is actively campaigning on behalf of Obama.

So, what to make of this? Obama asks that Johnson step down from his campaign (which was smart to do), but the depth of Johnson’s dealings that were the impetus for his resignation were confined to his Fannie Mae and Countrywide loan scandals only.

Yet, here we have Cisneros who was the HUD Secretary and has extensive financial ties to Johnson on multiple levels and is enriching himself as a result. Tsk, Tsk.

 

[Krustee]

I wonder if there were ties with the banks & HUD, Fannie Mae, Freddie Mac & others to the Clinton's?

Hillary Clinton: Campaign contributions
Top Contributors

This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate , rather the money came from the organization's PAC, its individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates.

Because of contribution limits, organizations that bundle together many individual contributions are often among the top donors to presidential candidates. These contributions can come from the organization's members or employees (and their families). The organization may support one candidate, or hedge its bets by supporting multiple candidates.
Groups with national networks of donors - like EMILY's List and Club for Growth - make for particularly big bundlers.

EMILY's List $525,560
DLA Piper $472,050
Citigroup Inc $420,467
Goldman Sachs $388,175
Morgan Stanley $358,930
JPMorgan Chase & Co $281,064
University of California $279,153
Lehman Brothers $246,953
National Amusements Inc $242,975
Skadden, Arps et al $214,710
Time Warner $193,356
Merrill Lynch $189,559
Greenberg Traurig LLP $186,800
PricewaterhouseCoopers $183,300
Microsoft Corp $183,219
Kirkland & Ellis $181,541
News Corp $167,200
Ernst & Young $156,130
General Electric $154,571
Latham & Watkins $144,635

http://www.opensecrets.org/pres08/contrib.php?id=N00000019&cycle=2008

Let's not forget:

Wow!

There sure is a lot of banking & lending institutions on there!

Just to be fair I better put up McCain

John McCain (R)
Top Contributors

This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate , rather the money came from the organization's PAC, its individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates.


Merrill Lynch $359,070
Citigroup Inc $296,151
Morgan Stanley $262,777
Goldman Sachs $228,695
JPMorgan Chase & Co $215,042
US Government $195,505
AT&T Inc $185,063
Credit Suisse Group $178,053
PricewaterhouseCoopers $166,470
Blank Rome LLP $161,826
Wachovia Corp $159,107
US Army $158,170
UBS AG $147,465
Bank of America $143,026
Greenberg Traurig LLP $142,137
Gibson, Dunn & Crutcher $141,446
US Dept of Defense $129,725
FedEx Corp $125,654
Lehman Brothers $115,707
Bear Stearns $113,050

 

[maxxx24]

Both parties take care of their own and each other and have been doing it for years. They both are at fault for the current situation. And whadaya know, finacial institutions are the top contributors to each party-small say they have in shaping policy

 

[Krustee]

-small say they have in shaping policy

That's what lobbyists are paid to do.

It sucks but it's legal.

 

[maxxx24]

That's what lobbyists are paid to do.

It sucks but it's legal.

That's my point, the banks are THE lobbyists in the US and both the Dems and Reps shape legislation accordingly.

 

[Krustee]

That's my point, the banks are THE lobbyists in the US and both the Dems and Reps shape legislation accordingly.

I reckon I would have to concur with that Max.

 

[Krustee]

Now that the economic downturn is a reality for us here in Canada, let's look at what we discussed before.

 

[Krustee]

The reason the financial sector was unregulated by the Clinton administration and the G.W.Bush administration is directly related to the way campaigns are waged in the USA.

It takes a 100 million to get elected to Congress, It takes almost 10 Billion to get elected President.

That money doesn't come from Joe Sixpack and Flo Supermom. Despite anything that any of the candidates had to say about the funding of their campaigns.

Um I think that's de-regulation or to be more specific changing a public protection policy of banking regulations by repealing the act which prohibited the banks from mixing insurance & stock brokering into their portfolio of services due to the conflict of interest inherent to these services being provided by the same institution.

That's why the bailout package in December was structured to allow the financial sector to make payments that didn't benefit the average American.

That's why people like Bernie are able to run 50 Billion Dollar Ponzi Schemes.

Bernie???

This guy?

The USA is toast. They owe 14 Trillion in direct federal debt. They owe 53 Trillion in direct governmental debt. They owe over 200 Trillion in consumer debt.

That money will never be paid. I'm betting that Barack Obama will emulate Roosevelt in 1933 and undo Nixon's action in 1971. Roosevelt made it illegal to own gold in the USA (ever watch Goldfinger) and revalued the US currency at U$35 dollars per ounce of gold. American currency held outside the USA at the end of the transition period became worthless, American Bonds held outside the USA at the end of the transition period became worthless. All the money that was returned into the USA for transition was taxed. Roosevelt effectively paid around 70% of the value of American Currency and Bonds that were outstanding in 1933.

I don't think we will see that kind of response but I would not be surprised if a slice of what's happened in Iceland lands in the heartland.

Read & weep:

Iceland's Economic Meltdown Is a Big Flashing Warning Sign

By Toby Sanger, AlterNet. Posted October 21, 2008.

Iceland followed the prescriptions of a right-wing ideologue, and its economy paid a severe price.

Iceland -- better known for its geothermal hot springs, abundant fish, all-night raves and eclectic musicians such as Björk and Sigur Rós -- has now become renowned for something else: It is the first catastrophic, and perhaps most unlikely, casualty of the 2008 economic and financial meltdown.

Iceland is now essentially bankrupt after the government took over its three major banks to prevent them from failing. It owes more than $60 billion overseas, about six times the value of its annual economic output. As a professor at London School of Economics said, "No Western country in peacetime has crashed so quickly and so badly."

What on earth happened to get Iceland and its banking sector into such a state?

It turns out that Iceland, despite its coalition governments and Nordic social values, became a poster child for neoconservative economic policies inspired by Milton Friedman during the past decade. Friedman himself visited Iceland in 1984 and participated in what was described as a "lively television debate" with leading Socialists. This inspired a generation of young conservatives who came to power through the Independence Party in 1991 and have run its government through different coalitions since then.

Friedman may be dead now, but the economic and financial collapse of 2008 is becoming a real-life battleground of his theories against those of the other giant of 20th century economics, John Maynard Keynes, and their respective followers. Will financial market bailouts put the economy back on track, or are more extensive reform and a more active role for the government needed?

Keynes' analysis was complicated and nuanced. The work for which he's best known, The General Theory of Employment, Interest, and Money, provided a theoretical basis for the economic reforms of the New Deal era -- investments in public works and deficit spending that helped countries recover from the Great Depression.

While Keynes did not dismiss the role of monetary policy in countering an economic downturn, some of his followers, notably recent 2008 Nobel economics prize winner Paul Krugman, in relation to Japan, have focused on the possibility of a "liquidity trap" that makes traditional monetary policies, such as cutting interest rates, ineffective.

Keynes' theories, though often misapplied, provided the basis for most macroeconomic policies in the capitalist world from the 1930s until the 1970s when the oil-price shock and stagflation hit.

Friedman, in his Monetary History of the United States, argued that the Great Depression was primarily caused by negligence by monetary authorities, such as the U.S. Federal Reserve, who didn't do enough to respond to an ordinary financial shock by expanding the money supply.

Friedman and his Chicago school of economics then very successfully spearheaded a reaction against Keynesianism, largely defining economic policy since the 1980s. The main policy prescriptions -- restricting the role of government, deregulation, privatization, cutting taxes, low inflation and the benefits of free markets -- were encapsulated in the "Washington consensus" and imposed with missionary zeal by IMF economists around the world.

While Friedman's narrow form of money supply monetarism was quickly abandoned in the early 1980s, most governments have relied primarily on monetary instead of fiscal policy for stabilization of their economies over the past few decades. This turned Alan Greenspan, former head of the U.S. Federal Reserve and an advocate of Friedman's policies, into the most important economic policy maker in the world. Although Greenspan was never elected, had no particular expertise in economics and was a disciple of the fringe ideology of libertarian Ayn Rand, he was able to use his considerable power to endorse tax cuts and deregulation. He is now widely considered to share the blame for creating the conditions that resulted in the current economic collapse.

Greenspan's successor as chair of the Federal Reserve, Ben Bernanke, is also a follower of Friedman, but he is an accomplished economist. Coincidentally enough, one of his areas of expertise was in the economics of the Great Depression; he once boldly stated that the Federal Reserve was responsible for causing the Great Depression and making banking panics during it "much more severe and widespread."

Bernanke is now one of the people in charge of what is probably the most expensive experiment in human history: trying to avert another Depression, using economic policies inspired by Friedman. The cost of this to the U.S. Treasury so far has already reached well over $1 trillion and continues to rise.

So how did the much smaller but perhaps more ambitious experiment with Friedmanite economic policies fare in tiny Iceland, one of the most physically isolated countries in the world with a population of only 320,000?

Under the leadership of Prime Minister David Oddsson and explicitly inspired by Friedman, Iceland's neoconservative young Turks implemented a radical (but now familiar) program of privatization, tax cuts, reductions in spending and deficits, inflation targeting, central bank independence, free trade and exchange rate flexibility. Corporate taxes were cut from 50 percent down to 18 percent. Privatization and deregulation were driven directly through the prime minister's office, and the major banks were privatized.

Economic missions and reports on Iceland issued by the influential International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) largely praised and encouraged these reforms, often disregarding the rising risks for its financial sector until recently.

Click on this to read more

So for the folks who read the above ... what do you think went wrong?

Does this prove Capitalism does not work?

comments?

 

[chilli]

Dood your explanation is very simplistic and fairly ignorant. There are a lot of other variables involved in this crisis than just consumers taking on bad loans.

Everyone was in on this.

Please don't ever do anything that involves you having any power of anyone else.

Like run for politics, or run a company.

If you are a boss - you must be a nightmare to work for.