Charts SYSTEMS

[snootmagruder]

JLS, That WIKI article is long and states that the FCIC (Financial Crisis Inquiry Commision) stated it was not the fault of CRA and some may stop reading it right there. So I'll quote what I feel and the most important points:

"The Housing and Community Development Act of 1992
This legislation established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie's and Freddie's loan purchases be related to affordable housing. However, HUD was given the power to set future requirements, and HUD soon increased the mandates. (to 52% at 2007)"
I have read on a couple sites that fines would be used to enforce the GSE's compliance on the above.

Note the name of the program above was not "CRA" and that "CRA" is used as a catchall phrase for all government low income loan programs and the reason why liberal studies that claim CRA was only a small percentage are flawed.
The above named government loan program was very significant and equal to CRA. Although CRA specifies loans to be made in a manner consistent with safe and sound operation, they applauded what they called "flexible" lending standards which entailed low to no down payments, low credit scores, gaps in employmentand payments of 50% or higher of income.
""Over the past decade Fannie Mae and Freddie Mac have reduced required down payments on loans that they purchase in the secondary market. Those requirements have declined from 10% to 5% to 3% and in the past few months Fannie Mae announced that it would follow Freddie Mac's recent move into the 0% down payment mortgage market"

"The GSEs had a pioneering role in expanding the use of subprime loans: In 1999, Franklin Raines first put Fannie Mae into subprimes, following up on earlier Fannie Mae efforts in the 1990s, which reduced mortgage down payment requirements. At this time, subprimes represented a tiny fraction of the overall mortgage market.[64] In 2003, after the use of subprimes had been greatly expanded, and numerous private lenders had begun issuing subprime loans as a competitive response to Fannie and Freddie, the GSE's still controlled nearly 50% of all subprime lending. From 2003 forward, private lenders increased their share of subprime lending, and later issued many of the riskiest loans. However, attempts to defend Fannie Mae and Freddie Mac for their role in the crisis, by citing their declining market share in subprimes after 2003, ignore the fact that the GSE's had largely created this market, and even worked closely with some of the worst private lending offenders, such as Countrywide. In 2005, one out of every four loans purchased by Fannie Mae came from Countrywide.[65] Fannie Mae and Freddie Mac essentially paved the subprime highway, down which many others later followed.

"It must be noted that the judgments made above (by Konczal, Krugman, McLean, the GAO, and the Federal Reserve) were made prior to the SEC charging, in December 2011, Fannie Mae and Freddie Mac executives with securities fraud. Significantly, the SEC alleged (and still maintains) that Fannie Mae and Freddie Mac reported as subprime and substandard less than 10 percent of their actual subprime and substandard loans.[82] In other words, the substandard loans held in the GSE portfolios may have been 10 times greater than originally reported"

"HUD mandates for affordable housing (The quote below was from this section)
Joseph Fried, author of "Who Really Drove the Economy Into the Ditch?" believes it was inevitable that the looser lending standards would became widespread: "…it was impossible to loosen underwriting standards for people with marginal credit while maintaining rigorous standards for people with good credit histories. Affordable housing policies led to a degrading of underwriting standards for loans of all sizes." [10]"
The above quote is my view in a nutshell

"Policies of the Clinton Administration
As noted, the National Homeownership Strategy, which advocated a general loosening of lending standards, at least with regard to affordable housing, was devised in 1995 by HUD under the Clinton Administration. During the rest of the Clinton Administration HUD set increasingly rigorous affordable housing loan requirements for Fannie and Freddie."

http://en.wikipedia.org/wiki/Government_policies_and_the_subprime_mortgage_crisis

[snootmagruder]

JLS, I read the first sentence and stopped. It is a waste of time.EDIT: I went ahead and read it. I find debating with you futile as your ego won't let you admit anything. But the mid sized banks have at least one person devoted to CRA compliance and the larger ones have teams devoted. Do you really think there are no consequences in CRA non compliance?
This is a good site that explains everything about the subject in a fair way that has both sides views of the event. Take notice somewhere in the article that the liberal comments from paul Krugman and the others were published before the SEC brought charges against the GSE's CEO's admiting that the amount of subprimes that Fanny and Freddie bought were 10 times what they originally admitted.
http://en.wikipedia.org/wiki/Government_policies_and_the_subprime_mortgage_crisis

[JLS]

snoot,

I didn't say they weren't involved. I said there is nothing for them to regulate because of a lack of goals and penalties within the regulation. I could easily say that they are not involved with enforcement, because there are no quotas and no defined penalties. But I repeat myself, just for you. Now, do you understand that? That puts a very large limit on their involvement. Then I said that without specific goals and specific penalties, the law is nothing more than a recommendation. In fact, I said that at that point it is not really a law. Laws like that get overturned by higher courts all the time because there is nothing to enforce when there are no goals or penalties.

Many months ago I sent you a direct link to a Fed analysis that said exactly the same thing that I wrote above, and I included a copy of a paragraph or two. You didn't understand it. So I made several efforts to try and dumb down what they wrote so that you could understand it. None of that had any affect on you because your mind was closed.

You have still not sent me anything directly from either the Federal Reserve or the FDIC. You have written more than once that the FDIC would cancel a bank's FDIC insurance if the bank did not adhere to the CRA regulations. Prove that with a quote from the law along with a link to that law.

All the government can do under any existing CRA regulation is to determine whether or not there is a CRA program, and make a record of its performance, then publish reports summarizing the results of their queries. That's it. It really doesn't matter who does that because it's nothing more than busy work. To do anything more than that would require additional legislation. Good luck getting that passed.

An evaluation policy is not the same thing as an enforcement policy. The quote that you just gave me refers to an evaluation policy. Do you understand the difference?

I repeat with slightly different wording to see if that works: evaluation policies and enforcement policies are two totally different things. There is a very significant difference. Concentrate on that, and you might figure it out.

For instance, your parole officer is required to evaluate your performance while you are on parole, then he is required to write a report. That's equivalent to the CRA "law". At that point, the parole officer has done all he is required to do. Do you understand that?

While on parole, you must follow specific parole requirements, and there are specific penalties for specific violations. {The CRA has nothing of that sort.} Depending on the results of the parole report, a different office of the government will come and arrest you if there is a violation. In fact, that would involve two other groups within the government: the judicial branch, because they have to approve an arrest warrant; and the police department, because they have the thugs with guns that are going to be sent out to get you.

Now you go figure that out.

But don't bother me with this anymore, as it all seems to be way above your pay grade.

[snootmagruder]

COMPQ chart, made a new high and the other indices will as well per the Happy Family Theory

[snootmagruder]

JLS, you just sidestepped the issue on my post and are trying to move on. You were incorrect about FDIC and the Federal Reserve not being involved in government law enforcement, own up to it.

As for your continued ramblings:

"The Community Reinvestment Act of 1977 seeks to address discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods.[7] The Act mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies"

definition for Mandate: "authoritative order: an official command or instruction from an authority"

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

[JLS]

snoot,

You wrote, "No, sorry, I didn't misunderstand a thing, although I'm quite sure you won't agree."

I know you don't think you misunderstand anything. I know you still think that the FDIC will jerk away their insurance from any bank that doesn't cow down to them. I know you still think that the CRA tyrannizes all mortgage lenders. I know you would totally ignore any evidence to the contrary. I know you go out of your way to find opinions that agree with yours, in spite of the fact that opinions are nothing more than hearsay and prove nothing.

That's because those thoughts of yours, along with a heavy dose of negativity, suspicion, and self-inadequacy, is the very essence of what is required by everyone who misunderstands things, including themselves.

That's why I ask you to go directly to the sources of information, such as the Library of Congress, the FED, the FDIC, HUD, et cetera, then copy and paste the data along with a link, then let your readers decide from that hard evidence if you really know what you are doing. You have never done that.

If you would just do as I ask then you wouldn't have to try to interpret the data yourself and thus come up with your usual misinterpretations. Plus, if your links prove you are right, then everyone can come to one agreement without any argument. That would be very easy to do. But no, that's work -- work sucks.

So you still supply links to opinions without their own verification, and some of those opinions don't even have the author's name attached. If you wrote that kind of a report in college, it would be graded as an F. If you did that in high school, the teacher would probably give you a passing grade just to get rid of you.

But there's still hope for you. If you wrote that kind of a report for a fabric-weaving class, or for a political science class, there's a good chance it would be graded as A, for good spinning.

[snootmagruder]

JLS, I missed this post, I'll finish with a reply here:

I said: "So much for your claim that FDIC and Federal Rerve are private companies and have no involvement with government regulations and enforcement." (I was referring to the fact that FDIC and The Federal Reserve are two of the four agencies in charge of policing the CRA regulations and quotas which were implimented by Congress.

You said: "You forgot to quote me.
I'm sure you took my statement out of context. I'm sure that would be very easy for you to do, and that's why you get most everything wrong."


This is a quote from this post: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=97131286
"The FDIC, like the Federal Reserve, operates as a separate entity from the rest of the Government. It receives no funds from the Government. The FDIC operates for the benefit of its member banks and not for the benefit of any other part of the Government, and all of its funds come from member banks."

No, sorry, I didn't misunderstand a thing, although I'm quite sure you won't agree.

[JLS]

Oh, that's grade-school-ish

Can't think of a coherent point of argument so just call me names.

[JLS]

snoot,

You forgot to quote me.

I'm sure you took my statement out of context. I'm sure that would be very easy for you to do, and that's why you get most everything wrong.

The Fed is a GSE, as is the FDIC. They are government sponsored but they are not government run. In other words, those two groups have to operate on their own except where laws already exist wherein they can use part of the other's services.

If Bernanke did make that suggestion (since he can't run anything but the Fed), it was probably because he knew the housing collapse was well on its way and spreading and he thought it wise that those two entities (and/or the rest of the banking system) not go belly up, so Congress would have to get money from somewhere (where it was already available) and pass it on to a place where it could be better used in that instant. The only other alternative is to wait for congress to pass a new bill to provide new funds, and you know how that goes.

As for your link, didn't I already reprimand you enough for that crap. You search on the internet for something that agrees with you and then you post it as though it came from the gods.

Did you notice that the author of that rag has so little self respect that he didn't even identify himself. But oh, that's good enough for snoot -- snort, snort.

Hey -- that sort of rhymes, now I know the origin of the alias!

Sorry snoot, I just had to do that. It's my sense of humor. Forgive me?

[snootmagruder]

JLS, you're too dense to understand. Now back on ignore for you

[JLS]

snoot,

The CRA had no written quotas or guidelines.

There you go. Bingo!!!

The idiot light just turned on.

At least you finally got that correct even though you didn't back it up with the quotes from Congressional bills that I keep asking you to produce, but which you are too lazy to do. Do you realize how long I've been telling you the same thing?

So now you have finally accepted something that I already told you over and over many times recently, and months ago too, which was that there were no strict requirements regarding material results within the CRA regs that you keep waving around, so there also cannot possibly be any significant penalties. Furthermore, the CRA warns all loan originators to not write risky loans. Therefore, in not-so-legal terms, the CRA covered their ass.

So I'll repeat, there are no penalties, and there never were, and the CRA warns loan originators to be very, very careful.

Therefore, your claim that the FDIC insurance would be taken away from banks that did not comply is full of crap. The FDIC is not authorized by any law to do that. Sooner or later you will realize that also.

If any bank or mortgage company wrote a risky loan to anyone, they did it voluntarily, not because they were forced to. The CRA had no force of law to make the banks do anything more than try to help needy people if it could be done safely. And you have to know that there is a huge difference between trying and doing. Therefore, no court of law could possibly blame CRA for anything regarding the housing market collapse.

So I'll put this whole thing in an equivalent perspective and see if you finally understand the whole picture. Let's suppose your wife encourages you to go rob a bank. In fact, she nags you about it all the time. You can't stand it anymore, so you go rob a bank so you can pay your bills and get your wife off your back. Hey, that wasn't so hard, so you do it more times. Then, after a few more robberies, you finally get caught. Then, being the sniveling person you are, you blame your wife because you were just doing what she forced you to do. Just how far do you think that would get in court?

Now if you have any credibility left at all, you will ignore me as you claimed you would two days ago.

[snootmagruder]

JLS, Correction to my last post stating 42% of Fannies mortgages were CRA, this site says it was 52%: " In 1996, the Department of Housing and Urban Development set a target for Fannie and Freddie that 42 percent of their investment must go to CRA-eligible borrowers. The same target was increased to 50 percent in 2000 and then to 52 percent in 2005."
http://articles.sun-sentinel.com/2011-10-14/news/fl-cmcol-cra-failure-mishra-1014-20111014_1_soundness-act-fannie-mae-fannie-and-freddie

Here's another quote from it showing Federal reserve's involvement. So much for your claim that FDIC and Federal Rerve are private companies and have no involvement with government regulations and enforcement.
"Even in 2007, just prior to the bankruptcy of Fannie Mae and Freddie Mac, Federal Reserve Chairman Ben Bernanke was suggesting to further increase the percentage of CRA loans purchased by Fannie and Freddie in order to help banks fulfill their CRA obligations. The Federal Reserve is one of the four federal regulators involved in enforcing the Community Reinvestment Act."

[snootmagruder]

JLS, Countrywide and the other mortgage companies were feeding the banks CRA compliant mortgages to fill their quotas they couldn't do on their own. And at the same time the original mortgage being issued by an institution not regulated by CRA directly, weren't counted in the liberal "studies" that claimed only a small percentage of loans were "CRA" If you had read the link I sent you in my last post to you you would have seen that. Another site claimed that the percentage of CRA loans that were in Fanny and Freddies quota were 42% at the height of the boom. But then again, as a Pseudo intellect, you can argue any point without more than just a very shallow understanding of it.
The reason the CRA and versions of it have tended to escape scrutiny is by design, The CRA had no written quotas or guidelines. The only thing written was that quotas were to be on a case by case issue and allowed any or all of the 4 government agencies to come in and strongarm the banks into as much as they could. If the banks fell behind on the quotas the low ratings were made public and the community organizations stepped in to threaten to shut them down. And of course, any bank with FDIC insurance, which was basically all of them had to agree to comply with CRA evaluations and quotas.

[JLS]

snoot,

Wow, that article sure does warn of a sinister plot!:

"The agreement does not create any new loan programs for poor or minority borrowers, but requires the lenders to do a better job of telling borrowers about such programs."

Oh. OK

My guess is that message amounts to signing a single sheet of paper with a small paragraph on it at the time of closing a loan which has already been decided upon. But let's continue ...

The agreement " … will also require lenders to designate a loan officer or department to handle consumer complaints and monitor their progress in making more loans to disadvantaged borrowers." I think I know that department. She's a good kisser!

And this too, "Although the voluntary agreement does not carry the force of law ..."

Well then, let's just fold that agreement up and fly it to the waste basket like an airplane. Some vague segment of the mortgage industry (that part which also has banking activities, which I learned from a reliable source) just signed something containing no force of law so that they could avoid force from where, huh, what? It just doesn't get any funnier than that.

So snoot, I've bought a number of properties during that period, and except for the last big one for which I paid cash, the others were written with either banks or mortgage companies. So I was probably a victim of that process but don't have any recollection of it. Before I signed anything, I've always seen what loan styles were available and decided what I wanted to do. Then we sat down at a table to sign all the papers. And as I sign the actual loan paperwork I also had to sign a whole bunch of single sheets, each one informing me of all sorts of other mostly inconsequential things along with warnings of this and that, and I sort of scan them, but I don't look at them very closely because I already want the loan and know what I'm doing. And while I'm doing that, the agent sees that I'm a little annoyed with all the paper signing crap, so he volunteers, "you know, we have to make you sign all that crap, and well, you know how all the lawyers are and blah, blah, blah."

Some of those sheets remind me of property lines, and neighbor's rights, and building codes, and flood zones, and earthquake zones, and rate increase schedules on variable rate loans, and how much time I have to back out of the purchase agreement, and tree removal, and sidewalk upkeep, and camper or boat parking, and underground utilities, and TV antenna height restrictions, and the list goes on and on.

And I'm guessing that the department that handles consumer complaints at the mortgage company was always that hot chick that takes all the incoming phone calls.

Do ya think that secretary sounds like Lily Tomlin as she answers the phone ... snort, snort?

So … what else ya got?

[snootmagruder]

GDL, That article is nothing short of liberal spin. Here's the truth about the articles two points:
* Although the CRA was started in 1977, it was the mid to late 90s changes to it that were important.Fanny Mae and Freddie mack were also brought into the game given quotas during this time which increased each year after.
* Mortgage companies and credit unions were assigned versions of CRA.
Article showing mortgage Bankers Association agreement voluntarily signed to avoid forced regulation.
http://articles.latimes.com/1994-09-15/business/fi-38912_1_mortgage-bankers

The credit default swaps and repeal of Glass Steagall certainly played into it, but they did not Cause it, only enlarged it from a very bad recession to a total meltdown.

The one thing different about this real estate cycle was the dramatically increased pressure for minority lending. The lowered lending standards were required to keep up with the quotas forced on them for the CRA loans
and it spread to the rest of the industry like cancer.

[JLS]

Bush Calls For Reform of Fannie & Freddie

Note: This process started in 2001. Congress finally came around to doing something in July of 2008. Better late than never? I also checked half or more of those Bush quotes and found no misrepresentation. The article was taken from NYTimes. Do your own DD.

Monday, Sep 22, 2008 at 9:49 PM PDT

For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

2001

April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie’s House In Order," Financial Times, 2/24/04)

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)

2007

July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, The White House, 8/9/07)

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, The White House, 12/6/07)

2008

January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

• "Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08)

• "[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)

• Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans." (President George W. Bush, Radio Address, 5/31/08)

June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying "we need to pass legislation to reform Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.

[JLS]

gdl,

I read that article so long ago I don't remember when. So I'm not going to read it again, but I hope I don't miss something.

I would still give a lot of the blame to Fannie Mae and Freddie Mac. These are the guys who essentially make the mortgage market and they have a great influence on the fluidity and integrity of the mortgage market. And they have the full faith and protection of the government -- I'm sorry to say.

Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security (MBS) to investors on the open market. This, as well as Fannie Mae's contributory activities, has the direct effect of increasing the velocity of money within the mortgage market. In a real sense, you don't have to print money to be in a position to strongly affect our economy, you can have the same net effect by leaving M alone while increasing V.

Fannie Mae's purpose is to expand the secondary mortgage market by packaging mortgages into MBSs for the purpose of reselling. This allows lenders to easily reinvest their assets into more lending. The resultant increase in funds fluidity lowers the bar of entry into the mortgage industry and therefore has the effect of increasing the number of lenders entering the market and thus increases competition with the result that lenders become more vigorous in their pursuit of new business (which is to write more mortgage loans, by hook or by crook) with the obvious result that they lower their loan standards in order to acquire that new business. This is a perfect example that, without enough regulation, or by not enforcing existing regulation, a system can blow up.

So you see, unlike snoot's theory, you don't have to be devious or threatening at all in order to grossly expand (and weaken through lower standards or noncompliance of existing standards) the mortgage market. You just have to look away and allow the system to run amok.

Though those are both separate (but sponsored) entities of our government, they still had close ties to congressional committees and were easily manipulated by congressional members. In fact, they met with, and partied with, each other all the time.

I also remember very vividly a few speeches on national TV wherein Pres. Bush asked Congress to pass legislation to better regulate the operations of those two agencies. There was no applause, and the audience always sat perfectly quiet. In fact, there was an article in the N.Y. Times that claimed that Bush spoke to Congress on these and related issues 18 times during his time in office, and there was a list of those dates in the article. I personally searched and found half of those events and verified that every one of those was valid, so I didn't make the effort to check out the rest. The senate was controlled by the Democrats at the time and they totally refused to do anything.

[JLS]

gdl,

I became really interested, and active, in the stock market in 1992. I had only two accounts at that time, a private account and a retirement account at the same brokerage, and I did very well in the beginning, but I noticed that I did much better in my retirement account than in my individual account, and I wondered why. I knew it must have something to do with emotions but I couldn't figure out precisely what it was. Some of my holdings were duplicated in both accounts, but there were still significant differences and I clearly traded the individual account more often. So I started studying the market and the economy, and how other people traded, because I wanted to do better in both accounts. Yet the more I studied, the worse I did. It got to the point that my individual account really started to stink while my retirement account was still doing fairly well.

Then during my studies, I ran across some professionally conducted psychological studies of stock market investors and it mostly related to professional investors: fund managers, and the like; people that traded all the time for a living. You would think that they would be pretty good at it. The results of all the studies were universally the same: the more that the professionals studied the market and the economy, the worse they performed. I thought, 'hey, I have brothers!' And, as I do with most everything, I found some humor in that. Still didn't know what to do about it.

It took me a long time, but I finally concluded that the solution isn't to learn how to be a better observer of economic forces; rather, the solution is to focus only on studying price movement of the underlying, and do that offline in a mechanical way (AKA formulating technical, mathematical methods and performing computer backtesting); and to limit the trading to stocks or indices which are in a state of having good current and historical fundamental values and to not speculate on the future or anything else.

So, problem solved. I'm happy with my mechanical methods, I continually search for improvements, and now my different accounts work equally well.

I appreciate and share your many interests in all these different things, but I'm not going to allow them to directly influence my trading. In normal markets, that influence will show up in market prices and that will determine my trading through my mechanical methods.

As for relationships between wage growth and credit levels, there is nothing that insists that leads to crisis. I would argue that it leads to stagnation as everyone reaches their credit limits.

A stagnant market is a perfectly reasonable and easy market to trade. I'm pretty sure I prefer that over a more active market. The older mechanical methods I used to apply could easily dither around, flip-flop, and retrace and burn money in a flat or slowly-moving market. With the methods I use now, that type of market is very profitable and lets me sleep late into the morning. I do that by primarily selling options to all the guys with the get-rich-quick attitude who are primarily buying long and short all the time while anticipating near-term events. They're trying to predict the future and get ahead of the trade. They usually loose and they're paying me in the process. Obviously that's not the way it works because options aren't a zero-sum game, but I like to think of it that way anyway.

[JLS]

Right,

I ask for proof, and you provide only hearsay. Apparently there is at least one person in this world that doesn't know that hearsay is not proof.

You only have to do a little work to download legal documents, read them, and copy and post the proof I ask for. Obviously you are one of those people that I have often referred to who does not want to work.

[gdl]

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

Sorry but the real debacle was the 2000 decision to not regulate credit default swaps and the 2004 decision by the SEC to allow brokerage to borrow up to 30 times their capital.

The notion that the federal government forced low income mortgage compliance is absurd. the amount of over-leveraged low income loans was a pittance to the Goldman Sachs brainchild of bundling the toxic mortgages to everyone and anyone, including whole countries. Greed ran amok. You didn't need the CRA which was passed in 1977 to cause a problem over 30 years later.

How about the Glass-Steagall act of 1933? It was systematically dismantled by 2000. Funny how this was place on the books as a direct result of the great depression, yet abandoned till the next crisis happened. Unfortunately it has not been reinstated. This is perhaps the single best reason I can expect more problems ahead. Lack of political will to do the right thing. It will take another crisis.

[gdl]

Of course all those points can affect the market. Lets for argument sake assume all 7 of your points follow the same path they have for 5 years now. I say this because China can increase their expansion at will, EU is determined to not allow defaults, and domestic government spending is a know entity. The austerity jargon is flowing into political action. Will cut our deficit in half by end of this year,and have just announced 29,000 government workers loss their jobs last month. As for population growth, or lack of, that is actually a plus. If baby boomers are leaving the work force in large numbers than there is certainly no lack of replacement workers today.

I try to stay unemotional and base my position on past history. There has never been a large crisis that has simply recovered immediately without retracing or going even lower. Way too soon, with no re-test to date. The overhang of real debt is just too great to allow the last 40 years of credit expansion to work. Individuals are right now back to reducing their savings, and increasing their risk tolerance with looser credit conditions. We will not last much longer if this continues. We are starting from a high debt point to keep building on it. Either wage growth exceeds out credit expansion or we have another debt crisis. Corporate mentality hasn't changed for 5 years now. No wage growth. Can't be sustained. The huge Band-Aid on housing helped not only stabilize home values, but allowed it to grow. No one is expecting continued growth going forward. There will be no help from mortgages or home asset increases this year and possibly next.

I don't expect the worse to happen this year, but right now that's an unknown. I do expect a nasty bear to happen to rebalance the earnings expectations going forward. We can't continue to squeeze productivity and costs much further than they are. Right now it is at record territory.

Time will tell. On the charts, I still expect a decent drop right near month end, no lower than 1770's. If that occurs I will watch vey carefully for signs of a blow-off of this 5 year recovery. SPX from 1770 to close to 2,000 in a few months is my guess right now. I agree as a short term investor the market is a good bet. I just don't let emotions take over and expect clear skies going forward without reviewing our prior pattern from similar circumstances. They are flashing a red-flag for the full year.

[snootmagruder]

JLS, I hate to post this on Gleno's board, but you're an idiot and I'm done wasting time on you. You're on ignore

[JLS]

Always 2 or more possibilities

Soon-to-be SPX double top on the daily followed by decline.

Soon-to-be SPX H&S top on the daily followed by decline.

The last few days are a pole to a flag consolidation followed by upward breakout.

Sideways 100-point channel, 1740 to 1840, going on and on and on ...

Flag breakout to the top of the channel followed by reversal to the bottom of the channel.

I'll choose the flag breakout but with a nearly flat channel defined by the flattest fork I can think of. Not that I like forks; they carry germs. But because this would not be really bullish or very bearish and it's flat enough to scare traders into thinking it's an ultimate top. In other words: not too hot, not too cold, a Goldilocks market. A trend trader's dream.

The problem is I don't like forks: it's too easy to tilt the handle of this one a little one way or the other and still leave a perfectly reasonable fork, and yet SPX would be either more bullish or downright bearish. This makes them very subjective. So we have to have something else to substantiate the pattern. Oh, I know, E-wave, or substitute any other letter for the E and it still works, sort of. Well, at least the Goldilocks theory and the wave substantiation are compatible with each other, for they are both linked to fairy tales.

Now isn't investing a whole lot more fun if you have a sense of humor and don't take yourself too seriously?

[JLS]

snoot,

You repeat a quote from where I defy you to find something within a specific law defining penalties (with the obvious intention that you quote from that law as I previously requested), then all you do is provide a link to a suit that derives income from selling his personal opinion in the media with no links to verification of his claims. You know, sort of like what you do except for the suit. Well, that's an improvement. The last time you did that, the writer's bio showed him as being unshaven and wearing a T-shirt and having worked nowhere else but the internet. At least this guy's picture shows he knows how to better market himself.

You still don't get it. I guess you never will. I'm asking you to show me the beef, and all I get is a used napkin. Something only my dogs would appreciate.

In previous posts I asked you politely to read the documentation that is the "law", the specific requirements of that "law", and the specific penalties described within that "law", then paste specific excerpts of that information within your responses and include links to that information. In other words, you actually have to read the law and do a little cut-&-paste. You know, like we all did in kindergarten.

Apparently, you are one of those types of people I've written about many times who don't like to work. The information is free and easy to find, so let's see you do a little work. You could try the Fed site -- they have all kinds of docs, and I found plenty there to read on my own. I'm sure you can do the same if you try. Or go to the web site for the Library of Congress, another place where I've gotten my information.

You have not yet done that, and you never will. I know you well enough to say that with conviction.

You really ought to do that, though. Because that is really the best way to communicate to me, or to anyone who can differentiate between fact and political blather.

The world is large enough, and the internet sprawling enough, to be able to find at least two warped opinions that agree. In fact, within this huge thing called the internet there is such a large market for anything, even the worst possible analysis of things, such that writers can flourish by writing that crap, and you are one of its willing customers.

I promise, though, I will change my mind if you show me the beef. The beef is what is actually the law, not yours or any other person's interpretation of it.

[snootmagruder]

JLS,

I defy you to find anything in any law relating to CRA that provides for a penalty consisting of denying a US bank "their FDIC insurance" [a quote from your statement]. That denial of FDIC Insurance is the crux of your whole argument, and it is faulty. The FDIC, like the Federal Reserve, operates as a separate entity from the rest of the Government. It receives no funds from the Government. The FDIC operates for the benefit of its member banks and not for the benefit of any other part of the Government, and all of its funds come from member banks.

You don't have a clue to what you're saying, the FDIC is the watchdog for CRA . ALL FDIC insured banks are required to abide by CRA and be periodically evaluated. This means specifically that you either follow the guidelines or you don't get the insurance. As for the phrase "consistent with safe and sound practices".
It was impossible to fill the CRA % quotas without dropping lending requirements so this meant nothing, just empty words.

And for the mortgage lenders like Countrywide I have an easy site for you to read that you might understand.
http://www.businessinsider.com/three-ways-the-cra-pushed-countrywide-to-lower-lending-standards-2009-6