The economic collapse is on everyone's mind and a major factor in the presidential election, and there are a lot of mistakes and distortions flying around especially with regard to how Fannie Mae and Freddie Mac were involved in the problems. The
planetmoneymp3 podcast covered a lot of this ground
this week. Here's my summary.
- If the collapse is the fault of
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If you haven't already, I recommend listening to The Giant Pool of Money for some perspective on how it was simultaneously no one's and everyone's fault. What we're seeing is emergent from the tiny act of making things look slightly better than they actually are, repeated a very large number of times.
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This post was not written for the purposes of comforting you. If you seek comfort there are much better sources than my silly blog.
It would be nice, however, if the people who foresaw the crisis were on the short list of people we looked toward for observations about what else is foreseeable.
Like what? Is this about the IPv4 address space?
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Granted, there is the question of whether or not the concept of Shock Capitalism might be a bit more amusing now - since there is a thin window that we may abandon the predator state.... restore the very regulatory oversight that radical left wingers like the AEI have been preaching that they have been trying to impose since 2005....
Or we may just be lucky enough to get enough suckers to buy the common stock so that we can crash these puppies and bring on the great new free market...
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And our members hated Fannie & Freddie. HATES THEM.
Because a confirming loan, that met their guidleines, tened to have a lower profit margin. And Freddie & Fannie refused to purchase loans that were utter utter shit- as of mid 2006, if you had a Zero down, zero documentation, interest only arm?
They would not go near it with a 30 foot pole.
We taught the underwriting courses, the ones that were an attempt to set standards & education for all of the kids in the back office. You have never seen anything so basic.
And people COMPLAINED. And FAILED. Despite the fact it was a completly open book course.
At the base level, it required far more education, effort and energy to be a hairdresser in most states than it did to write loans for millions of dollars- and the less you knew, the more you made.
I am going to be feeling guilty about this job for years.
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I'm confused. Your major mortgage industry trade group was in charge of purchasing loans or training people who traded them? Freddie and Fannie were hated because they refused to purchase bad loans? Because they were reluctant to act as irresponsibly as they could have? That's good(-ish), right?
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This was good. But at the same time, they wound up loosening those standards, as the business- heavily into exotic loans, went elsewhere. What F and F were purchasing were the "good" loans. (1)
It is in some ways a shame to see them bear the brunt of the blame when there is so very very much to be spread around.
(1) They are going to uncover a whole lot of fraud in the evaluation and aprasial of what a property was worth- as well as in that internal to the mortgage brokers. The best automated underwriting in the world cannot stop you from loaning $300k on a $70k house, if the people in positions of trust are gaming the system.
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Blaming this on the Community Reinvestment Act (passed in the 1970's) is total nonsense. A major force has been a lack of accountability: the mortgage originator had no responsibility once it was sold. At that point risk "laundering" becomes possible. Another lack of accountability is IBGYBG: I'll Be Gone, You'll Be Gone. When it all blows up.
Ian Welsh on Firedoglake and a fine crew on The Agonist have been very helpful background.
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They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing).
Can we start calling this the BushCrash(TM)? Please?
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I think that would be not just unfair, but running counter to my whole point I tried to make in my main post here. This isn't Bush's crash and it's not Clinton's crash, it's not the Republicans' crash or the Democrats' crash or even the Fed and Treasury's crash. You don't get a fuckup this huge without everyone being a part of the nightmare.
I am the the variable-rate financed purchaser of a bubble-inflated 2002 house, so it's partly my fault. You might as well call it the Tongodeon Crash.
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