Tonight's Blog Posts Brought To You By...

3 Graphs: How Obama's "Financial Reform" Crushed the Economy

These results are certainly apropos of any "financial reform" bearing the names of Barney Frank and Chris Dodd.

It is rare that a single law can have a significant adverse effect on the enormous U.S. economy. But there has never been anything like the Dodd-Frank Act. Signed into law by President Obama on July 21, 2010, its extraordinary effect in slowing the economy is coming into focus as its second anniversary approaches.

As shown in the chart below, the U.S. economy had a few reasonably good quarters of recovery after the crisis, particularly the third and fourth quarters of 2009 and the first quarter of 2010. These were not of Reagan quality, of course, but they suggested that the economy was beginning to heal.

On June 30, 2010, however, the Democrat-controlled House voted along party lines to adopt the House version of Dodd-Frank. That was expected, of course, but two weeks later two Republican Senators—Scott Brown of Massachusetts and Olympia Snowe of Maine—announced they would vote for cloture in the Senate. These two votes virtually assured that the bill would pass the Senate and eventually become law. Almost immediately, GDP growth in the third quarter of 2010 began to slow. It has never recovered.

...Although event studies like this are always subject to question, the fact that the same patterns are seen in overall GDP and in two major sectors of the economy lends support to the idea that they had the same cause. Moreover, no other event at the outset of the third quarter of 2010 can explain the two-year persistence of the decline that followed...

The act also had very substantial unintended consequences. In part, this was the result of the short shrift that the relevant congressional committees gave to specific provisions before adopting the law [which] was rushed through Congress only 18 months after the Obama administration took office and 13 months after the first draft of the law was available to Congress and the public. This would have been warp speed for any one of the major provisions in the act. For a law with dozens of complex, radical, and occasionally contradictory provisions, adopting it so quickly and with so little real understanding of its effects verged on dereliction of duty...

...For example, in the Title IX provisions on housing finance reform, two completely new and important concepts were introduced that had no clear meaning—the “Qualified Residential Mortgage” (QRM) and the “Qualified Mortgage” (QM)... now—almost two years after the act was signed into law—there is still no regulation that defines this key term... Similarly, the Consumer Financial Protection Bureau (CFPB), another creation of the act, recently put off promulgating its definition of the QM until the end of 2012, conveniently after the election...

In short, like Fannie Mae, Freddie Mac, Social Security, Medicare, "Great Society" and every other enormous, failed government program, Dodd-Frank is guaranteed -- that's right, I said it: guaranteed -- to fail.

One day, hundreds of years from now, historians will look upon this era's Democrat Party with amazement. How could any political party, they will ask, continue to pile program upon program without seriously evaluating the results of their prior failures?

The answer is simple. In their craven, white-knuckled death grip on power, Democrats are willing to promise anything, no matter how destructive it will be to society as a whole.

Obamonopoly, the most exciting board game you'll never get to play

READ THE REST...









You can now stop wondering why there have never been any investigations, or trials, or imprisonments of those behind the housing meltdown and the worst financial crisis since the Great Depression.


Background reading:
Real Clear Politics: The ACORN Obama Knows
Sweetness & Light: ACORN and the Mortgage Crisis
William J. Clinton: Remarks to the National Association of Home Builders
New York Post: The Real Scandal
Jammie Wearing Fool: Obama and Fannie Mae
Ace o' Spades: Unidentified bus runs over Franklin Raines
The Root Cause (of the Mortgage Crisis)

Report: How Open Borders Policies Led to the Mortgage Meltdown

A little-publicized article in the Norfolk Crime Examiner two years ago featured a startling interview with a mortgage auditor. This man "personally audited thousands of sub prime loans."

The auditor found that "[o]ver 50% of the subprimes were for cash-out refi’s. Regardless of the loan criteria used to pull random samplings for audits, the majority of the last names were Hispanic. The loans I audited were primarily in CA, NV, AZ, FL, CO, compare those to the states with the highest number of foreclosures [and] illegal aliens."

Are these figures plausible? It appears so. A June 2007 MarketWatch article confirmed that "...[m]ore than half of subprime loans are actually cash-out refinance loans... we see subprime offers all-over the place: 'consolidate your debts' or 'tap you home's equity,' the ads read. As Lee puts it, why not pay off credit cards with 18% annual interest rates with a 9% loan?"

"Cash-out refi's" -- for those unfamiliar with the term -- are situations where a loan is refinanced and cash taken out of excess equity in the home. The excess equity could have been provided by a massive run-up in prices or simply a fraudulent appraisal.

The auditor observed that, "[o]ne borrower stole the [social security number] of a retiree and took out $3.5 million in loans, turned around and did cash-out refi’s, then fled the country. The retiree was left with ruined credit, $3.5 million in loans and trouble with the IRS."

Interestingly, cash-out refi's hit a 16-year high in late 2006.

Because subprime cash-out refi's were known to have higher default rates well before this, a reckoning could have been predicted by regulators.

"During the bailout, I called my Congressman and other leadership including Barney Frank and asked if there was a provision within the Bill that prohibited illegal aliens from being bailed out…..the answer was no. I asked if there was a provision in the Bill that helped homeowners that did not take out subprimes but are faced with losing their home due to the negative impact of subprimes and was told... no. So in other words, those that committed crimes to obtain the loans will get a helping hand to bail them out, compliments of the US [t]axpayer!"

"Of course, we all know that, on October 26, 2001, President Bush signed the USA Patriot Act. However, I would wager to say that almost no one knows that contained in section 326(b) of the USA Patriot Act is a provision that allows US banks to accept Mexican Matricula Consular cards (MCCs) as a valid form of ID for opening bank accounts."

"It should be noted that while... Congress ordered American banks to recognize these Mexican-issued cards, there is not one Mexican bank which accepts their own government’s Matricula Consular card as a valid form of ID, because the bearer’s identity is basically untraceable."

In fact, members of the House Judiciary Committee confirm that Mexican banks do not accept Matricula Consular cards as valid identification.

In 2004, a Congressional effort to limit the use of MCCs was defeated by a consortium of financial institutions, immigrants’ rights groups, consumer groups, and many others. These organizations had formed a loose coalition to defeat, again, limitations on the use of consular ID cards by banks, credit unions, thrifts and other financial institutions.

By a vote of 222 to 177, the House passed a bipartisan amendment (HA 754), introduced by Representatives Barney Frank (D-MA), Pastor (D-AZ), Hinojosa (D-TX), Oxley (R-OH) and Kolbe (R-AZ). It prohibited the Treasury Dept. from implementing regulations regarding the acceptance of FCCs by financial institutions.

But prior to that hearing, the FBI was adamantly opposed to the use of MCCs as valid identification. Assistant Director Steve McCraw's testimony before Congress in 2003 was blunt: "...consular ID cards are primarily being utilized by illegal aliens in the United States. Foreign nationals who are present in the U.S. legally have the ability to use various alternative forms of identification -- most notably a passport -- for the purposes of opening bank accounts..."

The FBI identified a variety of problems with MCCs:

* There was no centralized database of MCCs
* There were no interconnected, local databases of MCCs and, therefore, no way to authenticate the validity of a card
* MCCs could be obtained with little -- and sometimes -- no documentation whatsoever
* MCCs were easily forged (90% in circulation had no security features at all)

In 2003, Gabriel Manjarrez, Senior Vice President and Hispanic Marketing Executive of Bank of America testified before the House Subcommittee on Financial Institutions and Consumer Credit. He explained, "...The first program I want to discuss is our initiative to accept the use of the Mexican consulate ID, the Matricula Consular. We developed this initiative [in 2001] because we wanted to make it easier for Mexican citizens living in the USA to have access to banking services from Bank of America... Today, every single Bank of America banking center recognizes the Matricula Consular as a valid form of identification."

At least a dozen U.S. banks and mortgage insurers offered home loan programs targeted at illegal aliens.

And anecodotal evidence would appear to confirm alarming abuse of the system; the infamous $720,000 mortgage to two pairs of illegal immigrants with a combined annual income of less than $50,000 comes to mind.

Consider the findings of the auditor: "Over 50% of the sub primes were for cash-out refi’s. Regardless of the loan criteria used to pull random samplings for audits, the majority of the last names were Hispanic. The loans I audited were primarily in CA, NV, AZ, FL, CO, compare those to the states with the highest number of foreclosures & illegal aliens."

* * * * * * * * *
Those who have supported open borders policies -- on either side of the aisle -- seem to have contributed mightily to the mortgage crisis. And someday we might actually get legacy media to tell the entire story of the mortgage meltdown.

Say, Anyone Know How President Obama's Mortgage Modification and Home-Buyer Tax Incentive Programs Worked Out?

Answer: Just as well as the Stimulus, Cash-for-Clunkers, "green jobs" programs and the rest of the President's exercises in central planning. Which is to say: it's another Obama record!

Today's new annualized home sales print was 307k, below expectations of 315k (yet oddly better than last month's downward revised which moved from 313k to 303k, wink wink nudge nudge Census bureau). This is not to be confused with the actual number of houses sold which came at a whopping 25k, and the third month in a row in which under 500 homes sold in the over $750,000 category.

Yet the most notable data point was the average new house sale price which dropped to $242,300. This is the lowest price since 2003! Something tells us that an MBS LSAP [Ed: i.e., monetization of securitized mortgage debt by the Fed] is pretty much guaranteed at this point.

And I simply adore the shrill shrieks of the drones when confronted with these increasingly dire statistics after three years under the Obama regime. They follow the same general template:

"After eight years of Bush (please note the heart-wrenching affliction -- that all drones suffer -- of Bush Tourette's Syndrome, even after all these years), what d'ya expect? It would'a been worse if he hadn't a'done it!"

Really, drones?

May I then refer you to One Chart to Rule Them All? This is a joint product of The New York Times and The Los Angeles Times, which patiently explains to even the most radicalized Leftist how the mortgage crisis began. Enjoy, miscreants!

Obama Silent as Millionaires and Billionaires at Fannie and Freddie Collect Huge Bonuses From the Taxpayer

After literally years of demonizing "millionaires and billionaires" (which, best I can figure, means people who make $200,000 a year), the President has gone curiously silent about a certain segment of the rich: the guys running Fannie Mae and Freddie Mac into the ground.

Barack Obama has exhorted supporters to object to large bonus payouts at financial institutions that took TARP bailout money. The House Oversight Committee and its chair, Rep. Darrell Issa, want to know why Obama hasn’t objected to the ridiculous levels of compensation at the two largest bailout recipients — Fannie Mae and Freddie Mac...

...lucrative compensation packages may be appropriate for profitable companies in the private sector, but substantial questions exist whether they are appropriate for entities in taxpayer-funded conservatorship, especially those that are bleeding billions of dollars each quarter. In this context, it is important to remember that taxpayers – not corporate shareholders – are footing the bill for these lavish bonuses.

Countdown to Democrat outrage in: three... two... never.

Compulsive Intervention Disorder

President Obama and other Democrats have routinely pinned the blame for the 2008 housing crisis on the mistakes of the prior administration. In fact, two years ago the New York Times published a 5,100-word article alleging that the Bush administration’s housing policies had “stoked” the foreclosure crisis and, therefore, the financial meltdown. Using a variety of governmental mechanisms, the Times alleged, Bush seduced millions of people into mortgages that they ultimately couldn’t afford.

The Times has forgotten -- or, more likely, chosen to ignore -- a long and sordid history of government involvement with housing.

In 1922, Secretary of Commerce Herbert Hoover, overreacting to a tiny dip in home ownership rates reflected by the 1920 census (from 45.9% in 1910 to 45.6%), warned that three-quarters of all Americans would be renters within a few decades (experts believe that the small drop was actually related to the after-effects of World War I).

The New York Times echoed Hoover's urgency, "The nation’s stability [is] being undermined... The masses [are] losing their struggle for a better life.”

Without waiting to see if postwar prosperity might change the trend, Hoover launched a program of aggressive government intervention into the housing market. Hoover's Own Your Own Home program prompted GM, U.S. Steel and -- most significantly -- federally chartered banks to dive into the housing business.

From 1927 to 1929, national banks’ mortgage lending increased 45 percent. Despite an obviously overheated market, The New York Times applauded the “wave of home-building” turning America into "a nation of home owners."

The 1930 census revealed 47.8% of U.S. households were living in their own homes.

But all was not well. Foreclosures rose from 2% in 1922 to 11% in 1927.

The October 1929 stock market crash touched off bank runs and cash-starved institutions stopped lending altogether.

By 1933, 1,000 homes were foreclosing each day.

Hoover's Own Your Own Home program had created a housing bubble. Mortgage loans more than doubled in less than ten years, a primary reason that 750 financial institutions failed in 1930 alone.

Construction jobs also fell 70% from 1929 to 1933.

You might thank that Hoover's housing debacle would have taught politicians the dangers inherent in engineering housing policy.

Instead, the feds reacted to the crisis by forming the Home Owners' Loan Corporation (HOLC). HOLC was a New Deal bailout organization that turned government into an even bigger player in the housing market. HOLC would buy up troubled mortgages from banks and allow homeowners to refinance.

HOLC turned into a massive federal agency, reaching 20,000 employees at its height. Despite the new loans it negotiated, 20% of these reformulated mortgages defaulted.

HOLC loan officers characterized two thirds of the defaults as borrowers refusing to renoegotiate, as homeowners rightly figured that the government wouldn't kick them out of their homes.

And despite all of its purchases of bad loans, mortgage lending never revived during the thirties.

The feds' attempts at central planning continued with the Federal Home Loan Bank system to provide funds to banks; the Federal Housing Administration to insure loans; the Federal National Mortgage Association (Fannie Mae) to purchase insured mortgages; and the Federal Savings and Loan Insurance Corporation to prevent future bank runs.

Put simply, the U.S. government had federalized much of the mortgage market.

1944's GI Bill included government-subsidized mortgages for returning veterans. By 1949, more than half of U.S. households owned homes and 40% were government-subsidized.

As homeownership grew, political pressure to allow riskier loans increased. As a result, the government eased its lending requirements, approving riskier loans and extending terms.

Predictably, the failure rate on FHA-insured loans spiked by 500% from 1950 to 1960.

By contrast, the foreclosure rate of conventional mortgages barely changed at all; many traditional lenders had maintained strict underwriting standards.

Ignoring all of these issues, the FHA embarked on a massive urban-loan program in the sixties and seventies. It turned out to be a catastrophic failure.

After the riots of 1968, the government passed a law giving poor families FHA-insured loans with nearly no down payments.

The result: massive real-estate flipping as speculators took advantage of the easy loan terms and uneducated home buyers. Foreclosures ran wild in more than 20 cities. The FHA became Detroit's biggest homeowner after it took about $200 million in losses. In New York, the tab ran more than $300 million. The final bill to taxpayers was estimated at $1.4 billion in losses.

Aside from the monetary losses, the program caused many neighborhoods to fall into ruins. Bushwick, a once-stable blue-collar Brooklyn community, became a burned-out husk of its former self as many buyers walked away from their properties and arsonists torched vacant homes. Entire blocks remained burned-out for years.

Once again, Washington's attempts at social engineering had failed as rampant speculation and corruption ran unchecked because the taxpayers were on the hook.

Again ignoring the problems endemic in any central planning of the housing market, the government next stepped into the breach in 1975.

Community agitators claimed studies were demonstrating that blacks were not receiving the same number of loans as whites; and the media jumped on the bandwagon. Experts pointed out, however, that creditworthiness of borrowers had not been taken into account.

Despite these obvious failings, Congress passed the Community Reinvestment Act (CRA) in 1977. It gave regulators the power to deny banks the right to expand if they didn’t lend at "acceptable rates" in poor neighborhoods. In 1979, the Federal Deposit Insurance Corporation (FDIC) rocked the banking industry when it used the CRA to deny the Greater New York Savings Bank to open a bank branch in Manhattan, claiming it hadn't met its lending obligations in Brooklyn.

The theme was repeated over and over again. In 1980, the FDIC told a Maryland bank that its expansion plans would be denied unless it started lending in the District of Columbia, though the bank had no branches there. Then the government began instructing wholesale banks—institutions without retail branches and that don’t lend to consumers —that they, too, had to implement urban lending programs.

Another milestone to the current meltdown was caused directly by the Association of Community Organizations for Reform Now (Acorn), which threatened to stop bank acquisitions in 1986 until it accepted "flexible credit and underwriting standards" for minority borrowers.

Acorn also successfully applied political pressure to Congress, which passed legislation in 1992 that required Fannie Mae and Freddie Mac to devote 30% of their loan portfolios to low- and moderate-income borrowers.

The campaign gathered inertia with the election of Bill Clinton, whose secretary of HUD, Henry Cisneros, began lobbying for zero-down loans, expanding federal insurance and using the CRA and other laws to force private money into low-income programs. Fannie and Freddie (also known as government-sponsored entities -- or GSEs) followed Cisneros' guidelines and further loosened underwriting standards, despite the FHA disaster of the sixties.

To meet the stated goals, the GSEs began enlisting large lenders to meet the new, flexible underwriting standards. In 1994, after accusions in Congress of "egregious redlin[ing]" by Rep. Maxine Waters (D-CA), the Mortgage Bankers Association (MBA) shocked the banking world by signing an agreement with HUD to increase minority lending. The first MBA member to enlist: Countrywide Financial, the firm at the center of the subprime meltdown.

As the volume of low-income loans increased, Wall Street began to take note.

In early 2000 the FDIC proposed increasing capital requirements for lenders making subprime loans, Carolyn Maloney (D-NY) and John J. LaFalce (D-NY) battled the attempts, urging the regulators “not to be premature” with stricter underwriting.

In 1999, despite new lenders in the market, the Clinton administration kept pushing aggressive mortgage products.

In July, HUD increased desired levels for the GSEs low-income lending. In September, the GSEs began purchasing loans made to “borrowers with slightly impaired credit”, lowering the bar still further. In the following years, Congress set higher goals for the GSEs.

By 2007, some $1 trillion in loans had been made to lower- and moderate-income buyers. And Countrywide was the biggest supplier of mortgages to low-income buyers for Fannie Mae.

There was no shortage of evidence that this approach was doomed to fail.

In October 1994, Fannie Mae head James Johnson reminded a banking convention that mortgages with small down payments had a much higher risk of defaulting (actually, three times more likely to default). Yet the very next month, Fannie expanded its program to include products with a 97 percent loan-to-value ratio (a 3% down payment), the result of more political pressure from Maxine Waters and others in Congress.

No matter how high ownership rates climbed, however, a new group below the bar needed help. Massive immigration during the nineties, for example, created huge new pools of prospective borrowers. The Congressional Hispanic Caucus created Hogar, an initiative that eased lending standards for immigrants, and mortgage lending to Hispanics soared. Today, in areas where Hispanics make up 25 percent or more of the population, foreclosure rates are now nearly 50 percent higher than the national average.

Last year, lenders began foreclosing on roughly 2.3 million homes; some experts believe that before the crisis is over, 8 million homes will have been foreclosed upon.

Despite all of these lessons, Washington is preparing for the next housing debacle.

Barney Frank (D-MA) has aggressively resisted attempts to privatize the GSEs, which would eliminate both the risk to taxpayers and the political influence endemic in the series of failures. And the Obama administration’s various mortgage bailout plans have not only failed, they also eerily resemble the New Deal’s HOLC.

Behind all of these efforts are fundamental misconceptions about central planning; that masterminds in Washington can somehow perform better than the free market, where conventional underwriting programs have succeeded admirably in the past without government regulation.

If nothing else, the last ninety years have proven that political tampering in the housing market results in nothing less than disaster. And we're on course for more, if we keep electing big government Statists to office.

The pinnacle of this senseless treadmill is having the likes of Chris Dodd and Barney Frank -- arguably as responsible as any two living individuals for the most recent crisis -- writing the "fixes" for the financial system; or President Obama's pursuit of reduced underwriting standards that "repeats [the] mistakes of the past".

What's that definition of insanity, again?

It's time to get government out of the housing business, once and for all.


Based upon: Steven Malanga's outstanding Obsessive Housing Disorder in City Journal.

Madoff's SEC regulators get off scot-free; liberals who bleat endlessly for more regulation hardest hit

I just love it when progressives and big government Republicans prattle endlessly about the need for more regulation. Every industry in America is regulated to an unprecedented degree, with thousands upon thousands of federal bureaucrats micromanaging light-bulbs, shower heads, the size of toilet tanks, gas mileage, energy exploration, dishwasher design, and everything else you can think of.

And no industry is more regulated than financial services.

After the housing market melted down thanks to eight decades of government tinkering, none other than Sen. Chris Dodd and Rep. Barney Frank -- prime culprits in the debacle -- put themselves in charge of "fixing" the financial system.

And the fixes consisted of thousands of pages of new regulations.

Dodd and Frank curiously ignored their financial benefactors -- Fannie Mae and Freddie Mac -- which contributed mightily to the disaster. Barney Frank used his pull to get his lover a job at Fannie (no pun intended) and Chris Dodd received sweetheart loan deals under the table.

In other words, the regulators were themselves in need of regulation.

A prime example of this kind of cronyism and corruption involves the aftermath of the Bernard Madoff Ponzi Scheme. Madoff's multi-billion dollar fraud represented the biggest and most obvious failure of the Securities and Exchange Commission (SEC), an agency designed to protect investors against precisely this type of crime.

Despite seventeen (17) years of warnings about Madoff, the SEC declined to seriously investigate until it was too late.

And what happened to the all-too-cozy regulators who should have heeded the warnings and protected investors from Madoff? You guessed it: virtually nothing. Not one was fired.

The Washington Post reported on its Web site Friday that seven SEC employees had been disciplined, based on details provided by a person familiar with the actions. A second source, an official involved in the process, told The Post that Schapiro had received recommendations to fire an employee over the mishandling of the Madoff case.

Later Friday, Nester confirmed details and added that an eighth employee also received disciplinary action. A ninth employee, who was facing a potential seven-day suspension, resigned before disciplinary action was taken, Nester said.

The punishments given the SEC employees varied and included suspensions, pay cuts and demotions.

The employee recommended for termination received one of the more severe penalties, a 30-day suspension along with a reduction in pay and grade. Another was given a pay cut of 5.7 percent. At the low end, one employee was suspended for seven days, another for three days and two others were issued counseling memos, a step below a reprimand.

What needs to be regulated is government itself. Crony capitalism is rampant in Washington, with politicians like Dodd and Frank out to enrich themselves at taxpayer expense.

We don't need more regulations or regulators. What we need are more controls on government, to protect the people from predators like these corrupt slime-balls.


Related: Compulsive Intervention Disorder

Odd Coincidence: Same Democrats Supporting #OccupyWallStreet Have Also Received the Most Contributions From... Wall Street

Stinky, street-defecating, Marxist hippies hardest hit:

Despite their support of the Occupy Wall Street movement, (who, unlike the Tea Party, believe government is the answer to our economic problems), Democrats have enjoyed large paychecks from the industry.

...the President’s funds are much higher. He’s actually raised $3.9 million just this year so far. But, he has raised nearly $12 million in Wall Street donations for the DNC. In total, that’s more than all the Republican Presidential candidates combined have received from Wall Street...

Damn Democrats: they broke my Hypocrisy-Meter again.

Who you should thank for Bank of America's new $5 monthly debit card fee

I'm assuming you've heard about Bank of America's controversial decision to add a $5 monthly fee to each debit card account. Here's why they did it (hint -- thank the Dodd-Frank "financial reform" bill):

The new $5 monthly fee Bank of America is charging debit card holders wasn't just picked because the spreadsheet guys really like Subway $5 footlongs. There's actually a calculation behind it. Here's the math.

ConsumerAffairs.com explains how under the old rules, debit card fees usually amounted to an average of 44 cents per transaction. The new rules cap the fees at 24 cents per transaction. That's 20 cents per swipe they're not making.

Now, the average consumer has 25 debit card transactions per month. Multiply the 20 cents 25 times and you get $5 as the amount, on average, Bank of America stands to lose per debit card holder per month.

So there you have the business reason for the $5.

Gee, I'm stunned.

You mean central planning didn't work (again)?

Pity the Obama Democrats can't and won't ever learn this simple economic truth.